business news in context, analysis with attitude

The New York Times has an op-ed piece worth reading by Columbia University law professor Tim Wu, who also is the author of “The Curse of Bigness: Antitrust in the New Gilded Age,” in which he argues that this week’s US Supreme Court decision in favor of American Express and against retailers “delivered a big blow to antitrust law and its traditional mission of helping consumers and fostering economic competition.”

The 5-4 decision, which said that American Express was within its legal rights to include in its contracts a stipulation that retailers cannot encourage customers to use other, less expensive forms of payment, is characterized by Wu as “a weak, highly abstract decision that masks the economic extremism of its ruling, which will further enrich Wall Street intermediaries at the expense of both merchants and consumers.”

An excerpt:

“The trial court in this case, after a full trial, found direct evidence that American Express’s gag orders were anticompetitive and thus an illegal restraint on trade. This included evidence that the gag order allowed American Express to raise its fees 20 times in five years.

“Nonetheless, the five more conservative justices on the Supreme Court managed to find a way to win this case for American Express. They did so not by contesting the fact that the gag order stymies competition — for that was impossible to disprove. Instead the court put theory ahead of practice in an absurd way: Even though, in practice, American Express hurt competition and inflicted harm on consumers, the court concluded, the company was not, in theory, powerful enough to do so.

“The logic is ridiculous: You could just as easily say that robbing banks is economically irrational, given the risks involved, and therefore it does not happen.”

You can read the entire opinion piece here.
KC's View:
There are a number of emails about this subject in “Your Views,” with one popular sentiment being that maybe retailers ought to follow Costco’s lead and toss Amex out of their stores, and explain to consumers why. Maybe make Amex gag a little bit. I’m not sure how far retailers can push this, but maybe signs that say, “We’d like to be transparent about credit cards and the cost of goods. But we can’t. Amex won’t let us. Draw your own conclusions.”

Actually, I wonder if some trade associations could underwrite an ad campaign with this theme. After al, trade groups don’t have contracts with Amex.

Maybe this isn’t workable. I’m just wondering if there’s room for a little guerrilla warfare here.

Then again … I had a conversation yesterday after MNB was posted in which it was pointed out to me - by someone who knows a lot more about this stuff than I do - that in part retailers have themselves, or at least their trade associations and lobbying representatives, to blame.

This person suggested that trade associations have largely supported Republican candidates, and that these candidates are responsible for the makeup of the current court … which just cost their members millions of dollars. This person was by no means arguing that retailers ought to support Democrats, who, let’s face it, also take positions not necessarily in the industry’s favor.

What this person was arguing for was a greater embrace of political diversity by industry lobbying groups, and that by spreading their influence - and yes, their money - around, they might have a better shot at heading off some of these issues or having a greater influence on the debate.

To be honest, I hadn’t thought about it that way. It was not my immediate instinct to go for the political analysis on this one. But I thought it was an interesting point.