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Report on Developments and Enforcement of Competition Policy
and Laws in the Western Hemisphere

Argentina: 1996

Submitted by the OAS Trade Unit to the FTAA Working Group on Competition Policies

ANNEX 1: Opinion of the CNDC on the American Express-VISA Case (continued)

The supply structure and its impact on prices

5.16. The composition by trademark of the stock of cards issued in Argentina is roughly as shown in the following table:

Card name Market Share
VISA 37%
Argencard/MasterCard 50%
American Express 10%
Others 3%

HHI = 3978
Source: Subsecretaría de Comercio Interior, 19961

5.17 On the basis of the above percentages, the Herfindahl-Hirschman Index 2 yields a result of 3,978 points, which indicates a very high degree of concentration of supply, shared among only four brands.

5.18 This degree of concentration reveals the oligopolistic features of the market, which explain why the administering companies can engage in differential treatment of affiliated businesses in terms of fees and charges. This differential treatment means that the deductions charged are the result of negotiating strength, which redounds to the disadvantage of the smaller businesses. The difference in rates varies from 1% for the major chains to 10% for those merchants whose small size makes them "price takers"; the average fee is about 9% (see para. 5.20).

5.19 The oligopolistic features of this market also mean that interest rates charged to consumers who buy on credit are very high, compared with the interest rates charged in countries with more competitive markets (see 5.23.), or with normal consumer financing rates.

5.20. Finally, it must be noted that an oligopolistic market tends to give an incentive for parallel behavior among some of its members. MasterCard's use of the same rule that VISA uses in the United States could be interpreted as parallel behavior, an interpretation that is reinforced by evidence that this same practice is repeated in other markets. While such a conclusion would require solid proof, it can safely be assumed that there is little if any competition between VISA and MasterCard, since in effect they are competing together, world-wide, against all other systems.

5.21 In quantitative terms, as a percentage of the value of sales, the average deductions charged to affiliated businesses in Argentina can be summarized as follows:

Type of discount Percent of sales value
Gross value of sale 100
Charges 9
    - Issuing bank
    - Administering company
    - Payer bank
Tax withheld 9
Net value of sale 82

Source: Subsecretaría de Comercio Interior3

5.22 The above table shows why the distribution of credit cards is so important for the banks: if the issuing bank and the payer bank are the same, the take is practically 8% of the total sales value. If this is not the case, the percentage accruing to the issuing bank is almost 6% of the sale value. It should be noted that the portion of these percentage charges that actually shows up in the price paid by the consumer varies, depending on the elasticity of demand for the good in question.

5.23. As the following table shows, these margins are very high by international comparison. The scale is such that it not only redounds to the disadvantage of both the affiliated merchant and the consumer, but also has a macroeconomic impact (see 5.25.).

  Eurocard/MasterCard VISA
Austria 3-4% 3-4%
Belgium 1.5-6.7% 1.5-6.7%
Denmark 0.75% 0.75%
Finland 1.35-1.45% 1.35-1.45%
France 0.8% 0.8%
Germany 2.4% 2.3%
Greece 1.8-7% 1.8-7%
Ireland 1.4-5% 1.4-5%
Italy 2.8% + member bank commission 2.8% + member bank commission
Netherlands 1.25-5%  
Norway 1.5-3% 0.85-2.6%
Portugal 3-5% 3-5%
Spain 0.4-6% 0.4-6%
Sweden 1.5-3%/TD> 1.5-3%
Switzerland 2.25-4% 3%
United Kingdom 1.9% 1.9%

Source: European Union4

5.24. The cost of financing purchases through credit cards in Argentina is also much higher than that prevailing, for example, in the United States. In effect, while the average annual cost of such credit in the United States is 16%, according to data from the Federal trade Commission, the average in Argentina in 1996 was 28% in dollars, and 57% in pesos, a differential that is higher than what could be attributed to country credit risk alone. Moreover, in Argentina, credit card systems not only typically charge a renewal fee, but also a fee for issuing an account summary. These two kinds of charges are a reflection of market "inefficiencies": they are not found in countries where the market is more competitive.

5.25. These high rates also reflect the existence of a vicious circle that shows up in costs, and that arises from the manner in which competition takes place: competition in effect relates not to the various prices charged, but to the form of promotion used. This vicious circle increases the inherent riskiness of the business, beginning with a customarily superficial assessment of the card "taker's" creditworthiness by the issuing entities. In this way, the risk of arrears or default is covered by spreading its cost across the entire portfolio, with no distinction as to individual behavior.

5.26. According to estimates for the Federal Capital and Greater Buenos Aires, based on a series of different services such as retail merchants, hotels and restaurants, credit cards account for 25% of the total volume of transactions. On the other hand, a survey 5 commissioned by the Ministry of Internal Trade in the Capital and Greater Buenos Aires in December 1996 found the percentage frequency distribution as shown in the following table, detailing consumers' relative use of various means of payment. Of the total of persons surveyed:

Hold and use %
Cash 100.0
Credit card 24.3
Purchase coupons 6.8
Checks 1.9
Other 0.0

Source: Consultant report commissioned by the Subsecretaría de Comercio Interior to Retondaro, Costaguta y Asociados, December, 1996 (included in Annex 7 to this report).

5.27. The high cost of credit cards in Argentina, as discussed above, indicates the great potential of the market, since currently most transactions appear to be conducted with alternative means of payment. This situation, which originates as a consequence of the concentrated structure of the market, suggests that there is a clear disadvantage to the economy as a whole. A greater degree of competition in this market would reduce the level of fees charged to businesses 6, as well as the interest rates charged to card holders who make purchases on credit. Consequently, there would be an increased use of credit cards, not only as a means of payment, but as a source of credit, with a resulting increase in the consumption of goods and services and in the yield to the government from the sales tax. Hence, the importance of increasing the number of independent participants in a market that has to date been characterized by an oligopolistic structure and a low degree of price competition.

Reputation as a barrier to entry

5.28. The degree of competition in any market is directly related to its accessibility to new participants, and this in turn depends substantially on the absence of barriers to entry. According to Bain (1956) 7, barriers to entry are defined as those that allow firms already in a market to continue to reap benefits above those that would normally exist, because there is no threat of entry by new competitors. The threat of new entrants to a market is one of the key elements of free competition, and represents the major element of protection against possible abuse and collusion.

5.29. Among the barriers that prevent or impede access of potential competitors to the market are those based on the "reputation or past history of the incumbent as a competitor", i.e. the possibility of firms already ensconced in a market to prevent the entry of new competitors through conduct the credibility of which is based on past experience or their history of pursuing similar behavior in other countries.

5.30. This is the case with the "rule" imposed by VISA and MasterCard in other parts of the world which, while it is not applied in Argentina, contributes to giving the defendant companies (VISA and MasterCard) a reputation that intimidates potential competitors eyeing possible entry into the market. In this way, such a "reputation" or past history is a barrier to entry for new competitors who seek to use banks as issuers of their credit cards, and the fact that the "VISA and MasterCard rule" exists in other countries creates for them a reputation that makes it seem likely that the same "rule" will be applied in Argentina. It was this threat that led the Commission to hear the complaint.

6. Legal grounds

6.1 The fact denounced in this case as a violation of Law 22,262, the existence of which will be examined subsequently, is the threat of expulsion from the VISA or MasterCard systems facing any bank issuing these cards that agrees to issue the cards of American Express. It would therefore involve imposing as a condition the refusal to do business with a third competitor, in the context of a contract that does not presuppose any exclusivity and contains no signed agreement on conditions of exclusivity, given that a single bank is currently allowed to issue more than one brand of card, provided it is accepted by VISA. 6.2 Because of the features mentioned, the so-called "rule" would constitute discriminatory market behavior, since it would represent an entry barrier that did not apply to all competitors, but would single out one of them, namely the complainant.

6.3 In terms of the factual basis, the complainant has submitted copies of newspaper articles from the United States announcing the adoption of the rule referred to above, in the United States and Asia on the part of MasterCard, and in Latin America and the Caribbean on the part of VISA International. The complainant has also submitted documentation on the decision of the European Competition Commissioner with respect to a similar complaint brought by American Express.

6.4 Among the pieces of evidence referring to the EU case is a statement by the Competition Commissioner of the European Commission reporting that the DG IV had launched an investigation into the complaints brought by competitors of VISA and that the European Union Board of VISA International decided to withdraw the proposal that would have prohibited its members from issuing competing cards, as soon as that statement was released. The evidence also shows that DG IV issued a preliminary ruling to the effect that " the proposal of VISA, were it to be adopted, would violate the standards of competition of the European Community, because it would restrict competition among international card systems and among banks that issue the cards used in those systems".

6.5 With respect to the defendant companies, it should be noted that, although the complaint cites the four companies mentioned in point 2, in fact the substance of the complaint relates only to VISA International and to MasterCard International as the authors of the allegedly anti-competitive conduct, while nothing is said about the participation of VISA Argentina or Argencard S.A. in adopting a rule that would penalize banks that agree to issue American Express cards, by expelling them from the system. Moreover, the documentation submitted as evidence refers exclusively to the two international companies and cites as precedents facts that occurred outside Argentina, without mentioning the local companies, VISA Argentina or Argencard S.A., nor stating in what form they were involved.

6.6 With respect to VISA Argentina, neither its own bylaws nor those of VISA International give it the power to regulate the operations of the cards it issues in Argentina, since these operations are governed by general terms and conditions set by the Regional Board of VISA, which decides on the acceptance of each bank in the system, and grants or revokes the license to use the trademark. Thus, the function of VISA Argentina is limited to administering a database and a clearing system, which is essential for the system's operation.

6.7. With respect to Argencard S.A. and the MasterCard/Argencard system, while this company's relationship with MasterCard International and with the licencee banks is different from that described above, the strategy or general marketing policy is set internationally by MasterCard International and not by Argencard S.A., which merely administers the trademark license within the country and has no power to deviate from MasterCard's international business policy or to set its own policy.

6.8. For the reasons outlined, neither VISA Argentina S.A. nor Argencard S.A., both of which were cited by American Express as responsible for anti-competitive behavior, are in a position to behave in the manner alleged, nor do they have the legal power to do so. This point must be clearly established at the outset, before proceeding to examine whether or not the alleged facts have indeed occurred.

6.9 The factual basis of the complaint centers on the precedents from the European Union, Asia and the United States, and on public statements of the presidents of both companies to the effect that they were about to issue the rule for the Latin America and Caribbean region.

6.10. On the basis of these precedents, the complainant considered that imposition of the rule in Argentina was imminent, and it accordingly sought the intervention of this Commission.

6.11. The complaint thus refers to conduct that was deemed likely to be practiced in Argentina, because it had been, or was about to be, put into effect in other parts of the world, and because the presidents of the defendant companies had declared such an intent. That is to say, it does not refer to acts or conduct that have occurred, but only those that are likely to occur, on the basis of the hypothesis described above.

6.12. In light of this, and in the absence of any additional evidence that would lead to the supposition that the "rule" was adopted or about to be adopted in Argentina, the complaint must be said to be based on hypotheses or conjectures and not on acts that have occurred and that can be imputed to the defendants: the existence of a practice is the absolute precondition for the existence of an illegal act and for the imposition of any sanction. This is true, not only by virtue of article 1 of Law 22,262, which requires the existence of "acts or conduct", but also by virtue of constitutional principles and norms, in particular those of Article 18 of the National Constitution, and those of the American Convention on Human Rights, which enjoys constitutional force pursuant to Article 75, para. 22.

6.13. Notwithstanding the above, as was stated in point 5 (the Market), the fact that the "rule" existed in other countries, and that it involved some companies or banking institutions that operate internationally, and particularly in countries where that rule has been applied, may have acted as a factor distorting competition, by the mere hypothesis that it might be applied in Argentina, although in fact it has not been approved nor implemented in the Latin American and Caribbean region nor in Argentina.

6.14. For these reasons, there are no grounds for legal reproach of the allegedly liable parties under Law 22,262, although this Commission understands, as discussed in point 5, that the reputation of VISA and MasterCard in other parts of the world may have served as a dissuasive factor in the Argentine market.

7. Conclusions

7.1. The "rule" that exists, has existed or has been alleged in other countries, has not been adopted by VISA or MasterCard in Argentina. Nevertheless, if that rule were to adopted in this country, it would add a further anti-competitive element to a market that, as noted, is already uncompetitive and highly concentrated. The rule would be anti-competitive because it would obstruct access of one competitor to the market in a discriminatory manner, and that of other potential competitors as well, and as a result would work to the detriment of the public economic interest.

7.2. It should be added that the fact that the "rule" exists or has existed in other countries may have had a considerable impact on the Argentine market, since because the players are essentially the same, there is a reasonable degree of likelihood that the same conduct would occur here.

7.3. Competition among the credit card systems would be restricted, since the "rule" would prevent other systems from using the banks to issue their cards. VISA's members include most of the banks, and it very unlikely that these would take any action that would risk their expulsion from systems that hold a very high share of the market.

7.4. Application of the rule would also restrain competition among banks, since it would diminish the range of products that they can offer their clients. The banks must be able to offer a broad gamut of services in order to penetrate the various segments of the market. By preventing the banks from offering the American Express card, the rule would obstruct competition for clients among the banks. The reduction of competition means that clients must pay higher interest rates and businesses must pay higher fees on the amount of their credit card sales. As a result of all this, there may be a negative impact on the public economic interest.

7.5. For the arguments described, and by virtue of the provisions of Articles 21 and 30 of Law 22,262, this Commission considers that the explanations submitted by the defendants must be accepted, and proceedings must be suspended. However, should conduct such as that subject of the complaint occur in future, this Commission would be obliged to re-open the proceedings, of its own accord.

7.6. In addition, for the reasons cited in point 5, this Commission recommends regular monitoring of the behavior of the credit card market, as outlined in point 5.7.

Resolution of the Secretary of Industry, Trade and Mining on the American Express - VISA Case

Buenos Aires

HAVING SEEN the report of case no. 064-002849/95 of the Registry of the MINISTRY OF ECONOMICS AND PUBLIC WORKS AND SERVICES, heard before the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION, whereby the companies AMERICAN EXPRESS TRAVEL RELATED SERVICE COMPANY INC. and AMERICAN EXPRESS ARGENTINA S.A. denounce the companies VISA INTERNATIONAL SERVICE ASSOCIATION INC., VISA ARGENTINA S.A., MASTERCARD INTERNATIONAL and ARGENCARD S.A. for alleged conduct prohibited by Law No. 22,262, and CONSIDERING: That the case was heard before the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION, which agency, pursuant to Law No. 22,262, issued an opinion, an authenticated copy of which is attached as Annex I.

That the complaint considers that the defendants are responsible for acts that harm, restrict and distort competition, representing an abuse of dominant position in the market for internationally accepted, general-use card systems to the prejudice of the public economic interest.

That the acts deemed to violate Law No. 22,262 consist in the announced adoption, by the defendants, of a so-called "rule" that imposes automatic expulsion from membership on any issuer of the VISA or MASTERCARD trademarks that decides to issue AMERICAN EXPRESS cards.

That the conduct denounced, which exists, has existed or has been denounced as anti-competitive in other countries, has not been adopted in ARGENTINA, for which reason there are no grounds for legal reproach of the alleged responsible parties pursuant to Law No. 22,262.

That notwithstanding this, the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION considers that conduct such as that denounced would be anti-competitive, since it would obstruct access of one competitor to the market in a discriminatory manner, and that of other potential competitors as well, with a possible impact on the public economic interest, in a market that in our country is already uncompetitive.

That the undersigned shares the view previously cited, which forms part of this resolution and to which reference is made for the sake of brevity.

That, for the facts of the case, and for the economic and legal considerations expressed therein, the explanations submitted by the defendants must be accepted, and proceedings under the case suspended.

That for the reasons cited in annex I it is advisable to instruct the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION to conduct regular monitoring of the behavior of the market in question.

That this act is issued by virtue of the provisions of Articles 21 and others of Law No. 22,262.


ARTICLE 1. To accept the explanations submitted by VISA INTERNATIONAL SERVICE ASSOCIATION INC., VISA ARGENTINA S.A., MASTERCARD INTERNATIONAL and ARGENCARD S.A., and to order the case to be suspended.

ARTICLE 2. The opinion of the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION, a certified copy of which is attached as Annex I, shall be deemed an integral part of this act.

ARTICLE 3. THE NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION shall undertake regular monitoring of the behavior of the credit card market.

ARTICLE 4. It shall be the prerogative of the NATIONAL COMMISSION FOR THE PROTECTION OF COMPETITION to proceed with the case.

ARTICLE 5. This act is to be recorded, communicated, published in the Official Gazette together with Annex I, and archived.


1. This study is found in Annex 7 to this report.

2. The Herfindahl-Hirschman index (HHI) measures the degree of concentration within a given market. An index rating of 1,800 points is already considered to show a high degree of concentration. In this case, the figure corresponds to the four brands together.

3. This study is included in Annex 7 to this report.

4. "Payment Cards in Europe": this study is included in Annex 7 to this report.

5. Multi-stage probabilistic design with 816 cases based on households in the Federal Capital and GBA. Level of confidence: 95%, margin of error: +/-3.5% (included in annex 7).

6. As noted in point 5.21, if the fees charged to businesses were reduced, the prices of the products they offer for sale would also decline.

7. Bain, Joe S., "Barriers to Competition", Cambridge, Mass: Harvard University Press, 1956.

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