Barry Nalebuff: A Pivotal Witness in the Mastercard Trial
Barry Nalebuff, a renowned professor of economics at Yale University, stepped into the witness box at the Mastercard trial. Known for his contributions to the economic sciences, particularly in the areas of game theory and business strategy, Nalebuff’s testimony is considered potentially critical in the case for the Australian Competition and Consumer Commission (ACCC).
Barry Nalebuff
The Allegations Against Mastercard
The trial pertains to Mastercard’s alleged manipulation of credit card payments in Australia from 2017 to 2020. The credit card giant is accused of coercing, enticing, and intimidating merchants into entering Strategic Merchant Agreements. These agreements required merchants to commit all debit volume to Mastercard, to the disadvantage of Eftpos, a local debit card system in Australia.
Nalebuff’s Insights into the Case
Nalebuff started his testimony by asserting that the case revolves around intent and purpose. He argued that it’s difficult to find a comparable case or literature that describes the complex situation at hand, which is what makes this case unique and interesting.
According to Nalebuff, it’s a case of carrot and stick, where Mastercard used discounts as a bait to attract merchants, and then used these Strategic Merchant Agreements as a stick to ensure all debit volume was routed through them. He stated, “These contingent discounts that we are seeing … it’s worse than predatory pricing because there are no benefits here.”
He asserted that the harm caused by Mastercard’s actions could be estimated at $43 million annually. The contracts forced some of the merchants, including the larger ones, to route 100% of their debit transactions through Mastercard.
The Impact of Mastercard’s Actions
Nalebuff’s testimony shed light on the extensive negative impact of Mastercard’s actions, which was more widespread than previously recognized. He noted that merchants were forced into a lose-lose situation, where they lost the credit carrots and were hit by the debit stick. This resulted in debit prices being $23 million a year higher than necessary, and Eftpos was effectively excluded from the competition.
He pointed out that 17 Mastercard Strategic Merchant Agreements involved iconic names in Australian retail and featured negative scheme fees, making it impossible for Eftpos to compete effectively. Nalebuff’s critical question to Justice Wigney was, “What did Mastercard think their merchants thought?”
According to Nalebuff, Mastercard was only concerned about losing debit share to Eftpos. He believed that the case could have been avoided if the contracts were unbundled and competition was allowed on a level playing field.
Barry Nalebuff’s testimony in the Mastercard trial serves as a stark reminder of the power imbalances that can exist in the world of business and economics, and the potential for such imbalances to negatively impact consumers and competition. His expert insights have provided a clearer understanding of the case and its implications for the Australian retail market.
For more information on the case and Nalebuff’s testimony, click Here.
