Tying in Two-Sided Markets and the Honor All Cards Rule

Competition Policy and Antitrust

Article Snapshot


Jean-Charles Rochet and Jean Tirole


International Journal of Industrial Organization, Vol. 26, No. 6, pp. 1333-1347, 2008


This paper observes that “honor-all-cards” arrangements may make market participants better-off.

Policy Relevance

Despite its prohibition in the United States, the honor-all-cards rule may be economically efficient.

Main Points

  • Payment card associations like Visa and MasterCard offer both debit and credit cards. These associations sometimes require that merchants adhere to an “honor-all-cards” (HAC) rule, stipulating that if a merchant accepts an association’s credit cards it must also accept that associations debit cards.
  • In a 2003 court ruling, Visa and MasterCard agreed to abandon HAC terms in the US. They are still used in Europe, however, and both associations use more complicated mechanisms to obtain a similar result domestically.
  • The paper develops a math model of consumer, merchant, and card association behavior and uses it to analyze the functionality of the market when the HAC rule is permitted and when it is not.
  • When the HAC rule is permitted in a competitive market, card associations can set their credit card and debit card fees simultaneously, and ask merchants to accept debit and credit cards as a bundle.
    • The result is that debit card fees are higher than they would otherwise be; credit card fees are lower; and cards are used more frequently.
  • Permitting the HAC rule makes market participants better off in some versions of the model.
  • This is a technically-sophisticated paper, although its core intuition might be within reach of non-quantitative readers.


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