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Case Analysis of Case: Visa and MasterCard's Association Potentially Anticompetitive - Essay Example

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Course: Date: Case Analysis: Visa and MasterCard’s Association Potentially Anticompetitive Visa and MasterCard are competitors in the ‘‘general purpose card network’’ offering similar products and services (Baye and Scholten 1)…
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Case Analysis of Case: Visa and MasterCards Association Potentially Anticompetitive
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"Case Analysis of Case: Visa and MasterCard's Association Potentially Anticompetitive"

Download file to see previous pages Despite, their dominance in the market, the ownership and management of Visa and MasterCard reduces their chances of competing effectively thereby exposing them to shift competition from others players in the industry. Nevertheless, Visa and MasterCard do not face shift competition and there are not new entrants into the lucrative market. Visa and MasterCard are owned by a joint venture with large banks that control, govern and operate for and in the interest of the member banks (Baye and Scholten 1). Visa and MasterCard are in alliance with the same banks which use their products and services to issue cards to customers or to offer card acceptance services to merchants (Baye and Scholten 1). Consequently, due to their interests in the two companies, member banks participate in their management. The banks attend the board of directors meetings of both companies and have members in critical committees of the Visa and MasterCard. Baye and Scholten (1) explain that the form of management control observed in the case of Visa and MasterCard is known as duality whereby they are control by banks having significant interests in both associations. The impact of this form of management is that the partners would be unwilling to fund and initiate competitive programs that would cause ‘‘customers to move their business from one association to the other’’ (Baye and Scholten 1). Visa and MasterCard competitors in providing general purpose cards are stratified into two levels; upstream market and downstream markets (Baye and Scholten 2). On the upstream market, they compete with American Express, Diners Club, Discover/Novus and Japan Credit Bureau. Individually, the members banks of Visa and MasterCard compete among each other and the competitors listed in the upstream market in card issuing and card acceptance market. Baye and Scholten (3) point out that Visa and MasterCard associations only compete among each other in the upstream market. Furthermore, Baye and Scholten (4) note that the significant competitors of the two are American Express and Discover/Novus networks and they limit new entrants into the market. New entrants into the general purpose card market is difficult to new firms given that such an initiative requires huge investment to gain a significant merchant and cardholder base (Baye and Scholten 5). Presently Visa and MasterCard enjoy a large merchant and cardholder base and it would be difficult to convince consumers to switch to a new company yet those holding cards issued their current company are accepted by majority of merchants in America. Visa and MasterCard came up with anticompetitive rules and policies that raise the costs of entrants in acquiring merchant and cardholder base (Baye and Scholten 16). Visa and MasterCard have imposed rules to the banks they partner with such that they only do business with them and not their competitors. Consequently, new entrants would have limited sources of capital to invest in the business. Dual ownership of Visa and MasterCard has resulted in reduced competition between the two. The two associations are controlled by the same banks having considerable financial interests in both networks thereby curtailing competition between the two (Baye and Scholten 14). Banks cannot support decisions that will see customer crossing from one association to the other since they have interests in both. Banks governing Visa ...Download file to see next pagesRead More
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At first, I thought 4 of pages is too much for such a question. But now I see it could not be done better. As the author starts you see the difficulty of the topic. I’ve read all at once. Great text
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