Lessons for Antitrust from the Capital One-Discover Merger: Is There a Subprime Market in Credit Cards?
- Author(s):
- Todd J. Zywicki, Julian Morris, Eric Fruits, Ben Sperry
- Posted:
- 09-2025
- Law & Economics #:
- 25-12
- Availability:
- Full text (most recent) on SSRN
ABSTRACT:
In April 2025, the Office of the Comptroller of the Currency cleared the proposed $35 billion merger of Capital One and Discover Bank, making the combined company the third-largest credit card issuers by volume. Because of the highly decentralized nature of the U.S. credit card industry, the merger typically would draw minimal regulatory scrutiny. Because of the significant market share of the two entities in the so-called “subprime” credit card market, however, the merger presented a novel question at the intersection of competition policy and consumer financial services—whether the “subprime” market should be analyzed as a separate market for antitrust purposes. According to one estimate the combined entity will have approximately 30% of the subprime market at the time the merger is consummated.
The OCC did not specifically address whether there was a “subprime” market that should be treated as a separate market for purposes of analyzing the effect on consumers and competition. We agree with that analysis. Although the term “subprime” is used colloquially, defining a “sub-prime market” lacks a determinate and stable definition for purposes of rigorous antitrust analysis. Moreover, consumers who participate in the subprime market are subject to constant change and turnover, moving frequently between the subprime and prime markets. Finally, given the permeability of any demarcation between “prime” and “subprime” consumers, other large credit card issuers already have a presence in the subprime market and could easily expand their existing operations if Capital One-Discover attempted to increase prices for consumers.