So a man walks into a shop and says to the shopkeeper “I’d like to buy that electric drill in your window and pay with my MasterCard”. “Certainly Sir”, the shopkeeper replies and starts to pack the goods.
“Actually”, the customer says, “I’ve changed my mind, I think I’ll pay in cash”. “Oh, I’m so sorry, Sir”, the shopkeeper says, “but your credit card and cash are not substitutable”
Get it? No? Well I guess you don’t work as an economist for the European Commission or the OFT in the UK.
In the consideration of whether interchange fees are anti competitive the authorities have currently defined the relevant product market for payment cards as ….. well, payment cards¹ . Not cash or cheques.
Ok, clearly certain characteristics of various payment instruments are different, and the economics of issuance and acceptance and value transfer are also different, but as a pure means of payment for goods or services then I would argue that the man in the street would consider that where the provider of goods or services is prepared to accept a number of different methods of payment then those different methods of payment must be substitutable as regards that supplier.
And then there’s the apparent conundrum where Commissioner Kroes announces in an April, 2009 press release that the EC are content that;
“empirical evidence of transactional benefits to merchants (no mention of consumers on the other side of the demand/supply chain) and the calculation of a MIF on the basis of this methodology (i.e. the ‘Tourist Test’), together with announced transparency enhancing measures were sufficient for the EC to conclude that it is not appropriate to pursue MasterCard for non-compliance with the (negative) Decision of 19 December 2007 or for infringing the antitrust rules”
but the tourist test (or avoided cost test) that MasterCard referenced in formulating their revised intra EEA interchange fee rates essentially marks the level of the interchange fee to a cost level where the merchant is indifferent to the method of payment chosen by the buyer.
Now you might be confused that the definition of the product market for payment cards is payment cards, but, where a fee level seems to be acceptable to the competition authorities it is based upon cost comparisons with other methods of payment.
Is it a complex world we live in ….. or is it a simple world made complex?
 In their decision the EC noted that there could be a narrower definition of the product market.