The DOJ-Apple case: Harming consumers versus harming competitors

The DOJs antitrust case against Apple concludes the series of cases against the big tech companies that have drawn so much ire from law enforcement. These include the DOJ’s ongoing lawsuits against Google and the FTC’s cases against Amazon and Meta.

While the Biden administration’s antitrust officials initially signaled that their enforcement goals included a preoccupation with political power and damage to democracy, harm to workers and small businesses, honestyAnd inequalitytheir white whale cases against the tech companies have largely complained about harm to consumers. Especially Lina Khan’s career catalyzing comment in the Yale Law Journal argued that antitrust law’s focus on higher prices was outdated in a world where companies like Amazon harm competition through low-pricing strategies. The complaint which Khan’s FTC has now filed against the company argues that Amazon harms competition through business practices that raise prices and harm consumers, largely consistent with recent enforcement doctrine.

In the Apple case, it will be interesting to see if the DOJ can convincingly demonstrate harm to consumers, rather than just harm to competitors. This is a difficult tension to overcome when bringing a “monopolization case” under Section 2 of the Sherman Act. Part 1 deals with collusion and conspiracies to restrict trade, such as fixing prices and dividing markets. This concerns multilateral decisions, that is, behavior involving more than one individual or company. However, Section 2’s monopoly prohibition means that a single company can be prosecuted for unilaterally protecting its monopoly power illegally.

As this suggests, a company must be found to have market power before it can be found that it has unlawfully protected that power. However, in a world of open market competition, maintaining margins and market shares is an all-consuming endeavor for companies. Anything a company does to compete – to gain market share and elevate itself above its rivals – can be construed as an attempt to monopolize an industry, especially if the company succeeds. The DOJ should outline how Apple’s practices have been problematic under antitrust law. To be successful in courtit will likely have to demonstrate specific harm to consumers, and not just harm to competitors.

The DOJs complaint argues that Apple does indeed have market power in two relevant markets, which they outline as the market for ‘performance smartphones’ (a category they have coined that excludes lower-quality, non-premium, ‘entry-level’ smartphones), and the broader smartphone market in general within the United States. It argues that Apple is abusing this market power to disadvantage rivals and reduce quality for users outside the company “walled garden” ecosystem.

The complaint alleges that Apple achieves this through five major abusive practices: (1) it discouraged the development of “super apps” that are written in programs that can be used across platforms and therefore accessible to any user, no matter what type of phone he has; (2) it suppressed cloud gaming apps that reduced dependence on its own hardware; (3) it purposefully degrades the quality of messaging between iPhone and other smartphone users to discourage iPhone users from leaving the ecosystem and encourage others to join it; (4) it does not allow non-Apple smartwatches to interact with its ecosystem; and (5) it doesn’t give third-party developers of digital wallet apps access to a key input they would need to compete with Apple Pay through the app store.

If Apple can prove that these business practices are designed to benefit consumers, the government may have a hard time convincing a court that these practices are illegal. Perhaps the hardest to defend is the third claim, which smartphone users are becoming increasingly suspicious of. An additional problem is that the group of “consumers” allegedly harmed in an antitrust case sometimes varies throughout the consumer welfare standard era, as Greg Werden, a former economist in the DOJ’s antitrust division, notes. in this podcast conversation. For example, is the relevant group of consumers iPhone users or are all US smartphone users?

A editorial in the Wall Street Journal which was published on the same day the case was launched, claims that although most apps in Apple’s app store are free, the number of paid developers using the store has increased by 374% in the past decade to 5.2 million . The company has also claimed that global trade facilitated by the store increased from $685 billion to $1.1 trillion, or 64%, during 2020-2022. If these figures are true, it may be difficult for the government to convince the court that consumers have been harmed by a traditionally monopolistic method of raising prices and cutting production.

The outcome of these and other important cases will show whether we are moving towards a policy of “competitive welfare” rather than a policy of consumer welfare. This would be more similar to the European Union’s system of competition policy, an example advocated by many modern antitrust organizations I hope the US will follow suit. In the EU, many more investigations into unilateral behavior are being opened, usually at the instigation of the suspect’s rivals or the companies with which he does business. A relevant example is the recent one Fine of 1.8 billion euros that the European Commission levied against Apple following an investigation initiated after an initial investigation complaint from Spotify.

Part of the literature on industrial organizational economics in the second half of the 1920se century examined how antitrust law could be used by companies to gain an advantage over rivals, that is, to undermine competition instead of protecting it. During this time, the consumer welfare standard took its place as the guiding principle for antitrust enforcement, alongside the “end of history,” in which liberal open markets and democracy were seen as the new hegemony.

However, antitrust law has not been immune to the rise of populism in recent times, as evidenced by the zeal of the Biden administration’s enforcers to focus on consolidation (“big is bad”). However, it seems that, contrary to what they have said before, their cases against big tech are trying to argue for harm to consumers and innovation. It remains to be seen whether they can successfully take that case to court.

Giorgio Castiglia is a program manager for the Project on Competition at the Mercatus Center and a PhD student in economics at George Mason University.