May 15, 2019

For Apple, Facebook and Google, markets define monopolies

Photo: Lynne Cameron - PA Images/Getty Images

An antitrust lawsuit against Apple and growing calls to break up Facebook tee up what's likely to be a lengthy, contentious debate over the boundaries of technology markets.

Why it matters: As calls mount to break up big tech companies or limit their power, their legal fate will hang on how judges and regulators define their markets.

Driving the news: The U.S. Supreme Court ruled Monday that a class action suit by users charging Apple's App Store with monopolistic behavior could move forward.

The big picture: Here's why "market definitions" are so central to antitrust fights.

  • Say you run the only restaurant in town — do you have a monopoly?
  • If the market is defined as "restaurants" or "dining out," then you do.
  • If the market is defined as "meals" or "food," well, people can buy groceries and cook, right?
  • One way, you're a monopolist — the other, you aren't.

In the App Store suit, users charge that Apple, by forcing developers to sell iPhone apps only through Apple's storefront and taking a cut of those sales, drives up prices.

  • Apple has argued that, among other things, users can access software and services via the web browsers on their phones, and that the majority of apps accessed from the App Store are free downloads that don't earn it a penny.

If you define the market as "iPhone apps," Apple looks a whole lot like a monopolist — it maintains complete control over the space.

  • You can't put a non-App Store app on an iPhone without "jail-breaking" it, tampering with the operating system in a way that violates Apple's terms and voids the warranty.

If instead you define the market as, say, "smartphone apps," you get a different outcome.

  • That's because users are free to buy Android phones and access a very different universe of apps. Users have choice — presto, no monopoly.

The same principles apply in the debate over breaking up Facebook.

  • In his recent essay arguing that Facebook has become too powerful, co-founder Chris Hughes argued that the company "is a powerful monopoly, eclipsing all of its rivals and erasing competition from the social networking category."
  • "The social networking category" is a way to define this market that most readily casts Facebook as a monopoly.
  • But if you call it "messaging," then Apple, Snapchat, and the cellphone providers all look like hearty competitors.

Similarly, in many countries, Google looks to have a monopoly in the search market. But if you define the market instead as "online information," the case is a lot murkier.

  • Google's Android practices have also come under antitrust scrutiny. Last year an EU ruling that penalized Google for practices involving the Android Play Store declared that Google had a monopoly in that market.

Our thought bubble: In tech, market definitions are unusually fluid because hardware evolves quickly and software is infinitely malleable.

  • Lawsuits and antitrust cases move slowly, and in the time they can be tried, the markets tend to have mutated.
  • But the tech giants' power has grown so vast that many critics see antitrust remedies as the only way to rebalance the industry's game.

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