The Department of Justice merger guidelines, which were revised and reissued in December of last year, specify market concentration and change-in-concentration thresholds for determining whether a proposed merger raises competitive concerns. These thresholds are grounded in many years of legal precedent, theoretical and empirical economic research, as well as in the practical experience of the Department of Justice and other agencies charged with antitrust oversight and enforcement.
The DOJ merger guidelines define a market to be highly concentrated if the market’s Herfindahl-Hirschman Index, which is the sum of the squares of the market shares of the individual firms operating in the market, exceeds 1,800. According to the guidelines, a merger that (1) creates a highly concentrated market or (2) further consolidates a highly concentrated market “is presumed to substantially lessen competition or tend to create a monopoly.” A merger that “creates a firm with a share over thirty percent” raises similar concerns, according to the guidelines.
Some critics of the recently announced proposed merger between Capital One Financial Corporation and Discover Financial Services claim that the consumer credit card market is overly concentrated and that the merger will therefore be anticompetitive. In this brief blog post, we demonstrate that such a claim is patently false and wholly disconnected from economic reality.
Even under a narrow and restrictive definition of the market for consumer cards that omits multiple significant sources of competition, concentration is far below the DOJ threshold and will remain so following the merger. In fact, there are numerous other important industries with levels of concentration well above that which characterizes the consumer credit card market.
Table 1 lists the 50 largest issuers of general-purpose credit cards in the U.S., not including credit unions (many of which make cards available to their members), based on card outstanding balances from regulatory filings, which is the measure of credit card activity most readily available in public data.[1] The table also reports the individual shares of these institutions relative to the aggregate balances of all 50. Two of the top 20, Credit One and Bread Financial, are nonbanks