Antitrust economics has its analytical side. But sometimes you hear a story — and you know you don’t have the full story — but it just carries with it a stench that something is awry. The odor that wafted from my iPad this morning when I read this was quite strong.

There’s a lot of hype around Apple Pay right now, but not everyone is on board with the new mobile payments system. In fact, a significant number of merchants, including heavyweights like Walmart, Kmart, 7-Eleven, and Best Buy, are in outright competition with Apple Pay. The retailers, through a joint venture formed in 2012, are building their own mobile payment app, called CurrentC. It’s expected to launch next year. In the meantime, these retailers have no intention to support Apple Pay.

Following Apple’s announcement last month, both Wal-Mart and Best Buy confirmed toThe Wall Street Journal that customers would not be able to use the system in their stores. Earlier this week, a leaked internal memo from Rite Aid revealed that the drug store chain was shutting off its NFC readers, disabling access to Apple Pay (and other systems, like Google Wallet and wireless carrier-backed SoftCard, which also depend on the contact-less technology). A representative later confirmed the news to iMore. Today, CVS followed suit and shut out Apple Pay, according to reports. Both will support CurrentC on launch next year.

So last week, in some of these stores you could use Apple Pay. This week in CVS and Rite Aid you can’t. The reason appears to be that a bunch of large retailers got together a couple of years ago to develop their own mobile payments solution — mostly to compete with existing banks and credit card associations. They are still doing that and will only launch their app, CurrentC, next year. In the meantime, they have acted to stop Apple Pay and Google Wallet from getting traction.

Why does this raise an antitrust smell? First of all, we need to be careful whenever a group of purchasers of something (in this case, retailers purchasing payment services on behalf of their customers), get together for a joint venture. Second, we should be worried when they do this in a vertically integrated manner — that is, they own the venture — and act to exclude competitors for those services. Finally, we should be extra worried when large buyers do this in an industry that has some degree of network effects — in this case, by driving standards for mobile phone payments and security — because this might end up harming smaller buyers.

On the face of the news stories — and I admit the whole story may not be there — this is precisely what is happening here. Big retailers have got together to develop a system that ostensibly competes with existing payments. So far so good. They all deserve more competition. But then they have acted to actually exclude new entrants into portions of those payment services. Both Apple and Google have been innovating with the goal of making these easier for consumers. Moreover, both have hardly developed strong traction and each has the potential to do so. And now, big retailers are blocking them from doing a function that is a complement to existing payments, a substitute to what the retailers are doing, and something that consumers may ultimately want but won’t necessarily be able to substitute between retailers to apply competitive pressure; after all, the biggest retailers are all part of the joint venture.

Something is amiss here and it is something that surely the Department of Justice Antitrust Division or the FTC should at least take a look into. I’ll update this post if it turns out that there is more to the story than the initial issues I have raised here.

4 Responses to Annals of Antitrust Smells: Retailers dropping Apple Pay and Google Wallet

  1. Andrew Cohen says:

    something is array ==> something is awry
    obstensively ==> ostensibly

  2. […] in the form of a private antitrust investigation against MCX. Although CVS and Rite-Aid's actions "raise an antitrust smell", it remains unlikely that an antitrust suit will bring about change. Proponents of the claims […]

  3. […] CVS and Rite-Aid’s actions “raise an antitrust smell“, it remains unlikely that an antitrust suit will bring about change. Proponents of the […]

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