XXV Edition

1-2 December 2016"

The Market Reaction to the Antitrust Investigation in the Payment System Sector

Battaglia Francesca, University of Naples "Parthenope"
Leonelli Lucia, University of Rome Tor Vergata
Ricci Ornella, University of Rome III

During the last decade, payment cards have been characterized by a rapid growth and widespread usage among consumers and merchants. Transactions which were once exclusively conducted in cash are increasingly made using cards in several countries (Hove, 2004; Deungoue, 2008). Despite the relevance of this line of business for the banking industry, regulators have always paid little attention to it, both by leaving everything to the supply side self-regulation and by lawmaking later than in other banking sectors, such as the traditional credit one. This situation led to high profit margins for the few operators of the sector, creating in this way an oligopoly and raising fees for card users. In the most recent years, antitrust authorities (both at the domestic and at the European Union levels) have intervened with sanctions against anticompetitive behavior of banks in the credit card business, e.g., in relation to multilateral interchange fees (MIFs). The aim of this paper is to analyse the stock price reaction to these authority interventions, in order to assess whether market discipline is effective despite the opacity of the business (Morgan, 2002) and able to complement regulation (Berger et al., 2000). In other words, our research question is the following: is the late authority intervention in the credit card business effective? Is market discipline in place? Specifically, we expect a negative stock price reaction for sanctioned banks, and we also expect a loss of shareholder value greater than the sanction inflicted by the authority, representing a reputational damage following anticompetitive behavior. Our sample includes banks operating in the EU-27 area, over the period 2005-2015. We collect all interventions made by both domestic antitrust authorities and by the European Commission to sanction anticompetitive behaviors in the credit card sector.

Area: Banking

Keywords: payments market, payment cards, interchange fees, merchant, cardholders, event study, fines, antitrust authority

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