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Comment by laser | Hacker News Reader

In the case being tried, why is it not straightforward to demonstrate that higher costs for the merchants due to anti-competitive practices by credit card companies leads to higher costs for consumers, and therefore meets the two-sided market standard that the author fears?

I'm not sure on the edges whether the concept of harming competition for the benefit of consumers is just, but at least in the example case I don't see how this is an issue.

Are the standards for demonstrating harm so high that you can't make a strong legal case that higher costs for merchants gets passed to consumers?

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>higher costs for merchants gets passed to consumers?

This is a common misconception. These fees come out of merchant profits. Otherwise, merchants would not care.

Account wise, merchant fees are an expense taken out of revenue, not out of profit. The fee is a cost on goods sold. Merchants care because by contract it causes them to inflate the price of all products, they're disallowed from explicitly showing the customer the fee as a line item, even though it has the same effect on price as a tax.

Most merchants would prefer the buyer have more information about why something costs what it does. Ergo the cash and debit card buyer would have no such fee on their receipt; someone with an ordinary credit card might have a 3% fee, and someone with a high kickback card might have a 5% fee. Rather than permitting freeloaders.

Not necessarily. Hiding how much something costs versus what you charge for it, is the secret sauce to making money in Business.

Seems like six of one, half dozen of the other. The merchants are the ones directly paying the transaction fee, but merchants only provide services to consumers in the for-profit sector so long as they can make a profit. As a bit of an extreme to clearly demonstrate the principle, if a business is operating at a 3% profit margin on revenue before processing fees, and credit card providers demand a flat 3% + $0.30 fee per transaction, then the business becomes unprofitable, and loses $0.30 per transaction. Only one of three things can happen here. 1. The business eventually shuts down. 2. The business raises its prices. 3. The business cuts costs (lowers quality of product on average? Unless can take advantage of non-harmful cost-saving mechanisms, like informing consumers of cheaper transaction payment options, offering incentives for such, etc. which is what is being restricted anti-competitively). All three of these responses directly harm consumers. Case closed?

Well, there is theory, and there is real world.

In the real world, reductions in debit card fees (in the USA, via the Durbin Amendment) have not lead to lowered prices, just increased profits. [1]

This explains why merchants care about processing fees.

[1] From page 27 of https://www.law.gmu.edu/assets/files/publications/working_pa...

"In the year following Durbin’s implementation, gasoline retailers realized more than $1 billion in savings from reduced interchange fees. But 'while this should mean savings of roughly 3 cents per gallon, no savings have been passed on to consumers.' This is particularly remarkable and instructive given that the retail gasoline industry is highly competitive, and at least one other study has demonstrated that gasoline excise taxes are almost instantly and fully passed through to consumers"

Your own report contradicts your argument all over the place.

"There is little doubt that the Durbin Amendment had a major effect on consumers — and would-be bank customers — as issuers have, in various ways, passed on some of the costs of reduced interchange fee receipts, as discussed above"

" retailers of smaller ticket items in particular have seen increased interchange fee costs as a result of the Durbin Amendment, and there is anecdotal evidence that these fees are being passed on to consumers"

I didn't bother reading the entire report, either.

Consumer cost is basically the sum of all of the underlying costs, and all of the underlying vendors' profits.

In the short term, if the cost of payment processing goes up or down, the merchant covers the change with its profits; however, prices can move. If I'm a merchant and my costs went up, I'm going to try to increase my prices to cover my costs and my profit target; if my costs go down, I may lower my prices to try to attract more customers, or because my competitors lowered theirs -- especially given all the merchants are paying similar fees, a big drop in processing fees would likely be reflected in consumer costs.

Yep. All costs are subsidized by the end consumer. That includes costs of service providers (aka, middle men) like shipping and credit card fees.

The merchant sets their prices based on the cost of the product and the cost to bring the product to market. If their profit is too low to sustain the business, prices go up. It does not matter why profit is too low. Any cost to the merchant increases the price for the consumer.

The people who actually pays for this are cash and debit card users. Because there is a single price for merchants, the merchant charges marginally higher to cover the cost of the transactions. Credit card users are less impacted because credit card companies convert a portion of the revenue into incentives for their card users to continue using their cards. (Chase Sapphire Reserve anyone?)

Here's a good paper that goes into this: https://www.bostonfed.org/publications/public-policy-discuss...

From the abstract: On average, each cash-using household pays $149 to card-using households and each card-using household receives $1,133 from cash users every year.

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