A years-pending antitrust lawsuit filed against American Express by the U.S. Department of Justice is bound for trial in the coming months after a judge last week denied motions filed by the payment firm. A recent scheduling outline from the court suggested the trial could commence as soon as July.
Resolution of the suit could carry implications for all Amex card merchants, especially those in the travel sector. DOJ claimed that group of merchants more than any other supplier category is "exposed to price discrimination" from Amex, driven in part by the card firm's market power in the corporate T&E card sector.
Filed in 2010, DOJ's initial complaint challenged merchant fee practices among major card networks, particularly rules that prohibited merchants from using incentives to encourage consumers to use cheaper forms of payment. Visa and MasterCard promptly settled with DOJ, altering some merchant practices, but Amex has continued to fight.
DOJ views the T&E category as a distinct area of Amex's card business, or in antitrust lingo, a "relevant market."
Noting that American Express has different pricing levels for various merchant categories, DOJ alleged that its "average card acceptance fee" for airline, lodging and rental car merchants in 2009 "was 12 percent higher than its average fee for all other merchant segments," according to court documents from 2010.
DOJ in its complaint also claimed Amex charged merchants in this sector "at a higher rate than competitors" Visa and MasterCard.
Furthermore, DOJ noted that Amex also "successfully maintained higher profit margins for T&E customers than for other merchant categories."
"Price discrimination occurs when a seller charges different customers (or groups of customers) different prices for the same services, when those different prices are not based on different costs of serving those customers," according to DOJ.
For the aforementioned travel merchant categories, "American Express' costs in those segments are not proportionally higher than costs in most other segments; in many instances, they are lower," DOJ noted, adding that Amex's leading position in the corporate T&E card sector reinforces leverage over travel merchants.
"American Express accounts for 70 percent of all expenditures made with corporate cards, which consist largely of T&E merchant purchases," according to DOJ's initial complaint. "Most merchants in the T&E market have not declined to accept American Express' cards or its merchant restraints even when American Express has imposed card acceptance fees that are substantially higher than those set by other general purpose card brands, despite these merchants' strong desire not to accept those prices and restraints."
As an illustration of such market power, "American Express imposed a substantial fee increase on major airline merchants in 2008 without losing any major airline merchant customers," according to DOJ, "even though its fees already were higher than those of other general purpose card networks."