They are competing for banks, not customers
Reader comment on: A "Reasonable Profit'
Submitted by ben (United States), Apr 21, 2010 13:13
I think you missed an important point in the article, which is that the credit card companies rely on banks to issue their cards, and therefor compete with each other over who can charge more. The barriers to entry (getting banks to sign on, or getting enough retailers to process a new kind of card) are prohibitive. This seems like an anti-trust issue. What is futureofcapitalism's opinion on anti-trust legislation? Was breaking up standard oil the right thing to do? according to futureofcapitalism's idealistic logic, if standard of oil were exercising monopolistic practices, then a competitor would rise up to challenge it by undercutting prices? I don't think this happened. Some industries lend themselves to competition better than others, it seems as though credit cards may not be one (and certainly not healthcare!)
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The Future of Capitalism replies:
I'm not an expert on Standard Oil, but it seems to me that the barriers to entry in the credit card business, while substantial, are not insurmountable. Discover, for example, managed to enter. And Paypal provides essentially the same service to Internet companies. Lowering the profits to "reasonable" levels just diminishes the incentive that might lure a new entrant.
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