Question

Case Summary

Visa and MasterCard are the two largest providers in the market for general purpose credit card network products and services. Together, Visa and MasterCard account for 75% of the dollar volume of transactions, and account for 86% of the number of general purpose cards issued. American Express, Discover/Novus, and Diners Club are the significant competitors in the general purpose card market. Both Visa and MasterCard are joint ventures (associations) that are owned and operated by the member banks that issue cards and provide card acceptance services. The member banks have an interest in both Visa and MasterCard (known as duality) and have representatives serving on the board of directors or important committees of both Visa and MasterCard.

Since the member banks of Visa and MasterCard have a significant interest in both Visa and MasterCard, they have little incentive or desire to compete directly against one another. The member banks have refused efforts by MasterCard management to develop its brand through marketing campaigns. The banks felt that this action would hurt the Visa brand, which the banks have a stake in. They have also not supported new product development, unless the new development was available to both Visa and MasterCard. In addition to avoiding competition between brands, the member banks have prohibited its banks from issuing competing credit cards, such as American Express and Discover/Novus. They have also worked jointly to discourage merchant acceptance of competing cards and access to ATMs for cash advances.

Discussion Questions

1. What is the ownership structure of Visa and MasterCard? How is the management set up to reflect this?

2. Who are the competitors for Visa and MasterCard? What are the barriers to entry for new competition?

3. How does the dual ownership of Visa and MasterCard lessen competition between the two?

4. How have Visa and MasterCard worked to restrain its competitors from competing in the market?

5. What evidence is there that Visa and MasterCard would compete more aggressively without duality?

Answer 1

Visa and MasterCard both are American based companies capturing the maximum share of market.

As per the different type of industries, they both belongs to oligopoly structure in which they both capture the maximum share holding of market leaving others with fragmented share. The management is done by cooperation from both hands they both interact with each other deducing the competition.

The competitors for Visa and MasterCard are :

• American express
• PayPal
• Bank of America
• Jp Morgan chase and etc.

There are many barriers to entry for new competition. The main barrier is investment and also the acceptance of new card by the customers.As customers barely switch to new card . There are many other reasons too which may include developing of new card and management of its sales

Visa and MasterCard both deals with market as a combine venture creating duopoly of their own among the market of oligopoly of there industry leaving others to fight with each other. They both fixes pricing by interacting with each other and maintains their margins against the feature of perfect competitive industry who fight and reduce there prices and other benefits.

They restrain other competitors by there duality. They both working as team check out each and every circumstances prevailing among the financial institutions and banks , also offering them the best offers and incentives which help them to cover maximum market by covering there maximum requirements leaving others to work on general purposes .Because of less overlapping of organization interest and terms help the government and the banks to interact with Visa and MasterCard preferring as priority leaving others to collude.Instead of working on competition with market they can easily work on features and benefits to be explore more leaving other competitors at back.

Last but not the least, contrary to the current scenario as per question if they both aggressively deal each other as perfect competitive firms instead of duality then they will fight with each other for prices , incentives , market capture , customer and biggest share among one as duality they are enjoying will be scattered among them and few to be moved towards other small share holding firms which will not only loss them but brings competition among themselves and bringing equilibrium point to the lowest just taking there cost with less margins.Thus Visa and MasterCard must rule the market with there duality working on new features instead of fighting for market competition.