DOJ v. Visa could prove an important battleground for tech antitrust 

While the aggressive antitrust agenda pursued against “Big Tech” by the Biden and Trump administrations has received much attention and debate, one major case is often overlooked. The Department of Justice (DOJ) took Visa to court in September 2024, alleging that the company had monopolized the market for debit card payments. While less of an ideological lightning rod than cases brought against Google, Meta, Amazon, and Apple, the case is likely to face many of the same questions arising from antitrust actions in complex multi-sided platform markets displaying rapid innovation. 

In its lawsuit, the DOJ alleges that Visa has monopolized the market for debit payment, violating Sections 1 and 2 of the Sherman Act. Visa earns about $7 billion in revenue from fees it charges to consumers, banks, and merchants on its network, which the complaint claims constitute monopoly profits. The DOJ alleges that Visa has maintained its dominant position over the past three decades with various exclusionary contracts, along with moves to partner with firms like Apple, whose own innovations in payment products might otherwise have eroded Visa’s position. The DOJ stops short of asking the court for breakups but seeks to enjoin and ultimately ban the firm from the many contracting practices it alleges to be illegal. 

Consistent with the bipartisan nature of the upticks in anti-tech sentiment and aggressive antitrust enforcement, the Trump administration has continued where Biden’s DOJ left off. The court rejected Visa’s motion to dismiss the case in June. Fact discovery in the case is not yet underway, and no trial date has been announced. We will learn much from both fact discovery and expert analysis, so it is too soon to predict the trial’s outcome.  

Visa’s debit network has important traits similar to the antitrust defendants commonly called “Big Tech.” These common features arise from the structure of these businesses, which use information and networking technology to connect different groups of consumers. This type of market complicates many of the core components of more traditional antitrust cases. For example, the rapid pace of innovation means new competition is likely to come from unpredictable sources rather than from entry into Visa’s market as defined in advance. Additionally, consumers derive significant benefit from the structure of the debit payment market as it exists. Along with antitrust litigation against the big tech firms, the DOJ’s case against Visa will likely help decide these questions. 

Two-sided platforms 

Visa’s debit network connects two groups of customers, debit cardholders and merchants, allowing the former to make purchases with the latter using a debit card. This business model, known as a two-sided platform, has become an increasingly important part of many industries and markets with the rise of information and networking technology.  

The modern debit payment market emerged from the combination of two other popular products: automated teller machine (ATM) cards and credit cards. ATM networks, which began in the 1960s and became commonplace by the 1980s, allowed consumers to withdraw cash from machines rather than visiting a bank. Visa and Mastercard first built payment platforms that were national in scope through credit cards, ultimately bringing similar reach to debit payment by partnering with banks to issue branded ATM cards also accepted by merchants.  

In order to connect cardholders and merchants, Visa’s and Mastercard’s debit platforms must also connect and transact with both the cardholder’s and merchant’s banks. This adds an additional layer of technical complexity to the market, along with more distinct groups of consumers. In the “general-purpose debit market” (which the complaint defines as the primary market in the case), Visa currently processes about 60 percent of transactions, with Mastercard in second place at about 25 percent. Visa charges a set of “interchange fees” to merchants and banks and “network fees” to cardholders’ banks. On a purchase of $60, issuer fees and network fees average out to 24 cents and 14 cents, respectively. Visa does not charge debit cardholders themselves any direct fees, though some portion of the network fees charged to their banks are likely passed along indirectly. 

Although the debit payment market evolved separately from the boom in internet technology that gave rise to Google, Facebook, and Amazon, these Big Tech firms are all two-sided platforms. Google and Facebook connect search and social media users, respectively, with advertisers, while Amazon Marketplace performs this function for online retailers and retail customers. The DOJ’s case against Visa is therefore a potentially important battleground, along with the major big tech cases, in deciding major open questions at the current frontier of antitrust. 

Antitrust cases of an earlier era usually involved firms charging one price to a single group of consumers in a relatively well-defined market. Economists in these cases were often able to apply standard statistical techniques to estimate firms’ market power. In two-sided platform markets where pricing is more complex and markets are harder to define, these standard techniques are less informative. This is one reason why economic analyses in the big tech cases have focused instead on alleged exclusionary conduct by defendants in which power in one market is leveraged to obtain a result in another connected by the platform. The allegations in the DOJ’s complaint against Visa are consistent with such a focus. 

Innovation and entry  

Debit payment systems have significant network effects, meaning the value of joining the network grows as more consumers and merchants join. They also exhibit economies of scale, where large firms such as Visa and Mastercard can take advantage of efficiencies to lower costs. These are classic barriers to entry that typically increase the monopoly power of large incumbent firms. But like other digital platform markets under antitrust scrutiny, meaningful entry and competition in the debit payment market is likely to come from different and less predictable sources.  

The IT and internet revolution of the late 1990s and early 2000s created numerous opportunities for innovative firms to disrupt the debit payment market with competing models. Payment apps and cryptocurrency are more recent examples of once unforeseen innovations that have partially, though never fully, disrupted the debit payment market. The DOJ’s complaint cites internal Visa documents that called Apple Pay an “existential threat” when first launched. Visa ultimately partnered with Apple, enabling the app to use its debit network and maintaining its market share. The DOJ includes this and similar contracts with firms like PayPal in its allegations of anticompetitive conduct, speculating that these partners would otherwise have been direct competitors to Visa. However, these partnerships undoubtedly delivered a more innovative and widely used service to consumers, complicating efforts to paint them as anticompetitive. 

While Visa’s debit payment model has proven robust to innovations in smartphone apps and cryptocurrencies, more substantial disruption could emerge unexpectedly, a possibility dramatized by the recent remedies phase in the Google search antitrust trial. In that trial, generative artificial intelligence (AI) dramatically altered the market for internet search with a speed and magnitude few had foreseen only a year earlier, when the first phase of the trial ended. As a result, U.S. District Judge Amit Mehta emphasized the need for “humility” when considering court-ordered interventions in such an uncertain climate.  

Consumer welfare 

In order to obtain a judgment against Visa, the DOJ must convince the court that the current debit card market structure or the alleged anticompetitive conduct has been harmful to consumers. Visa’s consumers for the purposes of such an analysis are those found on both sides of its payment platform: merchants and their banks on one side, and debit card users and issuer banks on the other. The current market structure is almost certainly to the benefit of debit card users. They do not directly pay the interchange fees at issue in this case, and benefit from the network effects and economies of scale of Visa’s debit platform. 

A future trial will likely focus on the merchant side of the market, and the potential benefits and harms associated with the many types of contracting discussed in the complaint. The two-sided structure of this market opens the door to many types of contracting that link firms across multiple markets, with parallels to both the Google search and Google ad tech antitrust cases. As the verdicts in both these cases demonstrate, contracting of the type alleged against Visa can raise antitrust concerns. However, there is also reason to believe many merchants have benefited from the discounting and partnership agreements alleged to be anticompetitive in the case.  

Should the case ever proceed to a remedies phase, the benefits to consumers on the user side of the platform may take on added significance. The DOJ is asking the court to ban many of the contracting practices Visa commonly employs on the merchant side of the platform. Such interventions could interrupt the smooth functioning of debit payment systems or potentially change the structure of the market in a way that harms debit card users. An analogous situation in the Google search antitrust case prompted Mehta to scale back remedies proposed by the DOJ. 

Would-be reformers such as Biden-era Federal Trade Commission (FTC) Chair Lina Khan have argued that the two-sided platform structure itself renders the consumer welfare standard, long the dominant paradigm in antitrust, obsolete. While many, if not most, economists and antitrust experts strongly disagree, this position has already influenced the behavior of the FTC and DOJ (primarily through merger guidelines updated in 2023), along with the political debate. However, the consumer welfare standard has mostly stayed in favor in courts, with the complaints in even the big tech cases brought by Khan herself still making arguments in those terms. 

Beyond these big-picture questions about the future direction of antitrust, cases involving two-sided markets raise other difficult and open questions about the standard toolkit economists bring to enforcement agencies and courts. Issues around market definition, entry, and how the welfare of different groups of consumers should be weighed when intervening in these complex markets are all examples of such open questions. Alongside ongoing and recently concluded litigation against Apple, Amazon, Google, and Meta, the Visa case is likely to be a major battleground where such matters are resolved. 

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Source: https://reason.org/commentary/doj-v-visa-could-prove-an-important-battleground-for-tech-antitrust/