The DOJ-Apple Case: Harming Consumers v. Harming Competitors  

The DOJ’s  antitrust lawsuit against Apple rounds out the set of cases against the big tech firms that have drawn so much ire from enforcers. These include the DOJ’s ongoing suits against Google, and the FTC’s cases against Amazon and Meta. 

While the Biden administration’s antitrust officials initially signaled that their targets for enforcement include a preoccupation with political power and harm to democracy, harm to workers and small businesses, fairness, and inequality, their white whale cases against the tech firms have largely complained of harm to consumers. Notably, Lina Khan’s career catalyzing note in the Yale Law Journal made the case that antitrust’s focus on higher prices was outdated in a world in which firms like Amazon harm competition through low pricing strategies. The complaint that Khan’s FTC has now filed against the company argues that Amazon harms competition through business practices that raise prices and harm consumers, largely in line 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 simply harm to competitors. This is a difficult tension to overcome when bringing a “monopolization” case under Section 2 of the Sherman Act. Section 1 covers collusive agreements and conspiracies to restrain trade, like fixing prices and dividing markets. This involves multilateral decisions, i.e. conduct involving more than just one individual or firm. However, Section 2’s prohibition against monopolization implies that a single firm can be prosecuted for unilaterally protecting their monopoly power in an illegal manner. 

As this suggests, it must be established that a firm has market power before it can be determined that it illegally protected that power. However, in a world of open market competition, maintaining margins and market shares is an all-consuming effort for businesses. Anything a firm does to compete – to gain market share and elevate itself above its rivals – could be construed as an attempt to monopolize an industry, especially if the firm succeeds. The DOJ must outline how Apple’s practices have been problematic with respect to antitrust law. To be successful in court, it will likely need to show harm to consumers specifically, not just harm to competitors.  

The DOJ’s complaint makes the case that Apple indeed has market power in two relevant markets, which they outline as the market for “performance smartphones” (a category they have devised that excludes non-premium, lower quality, “entry-level” smartphones), and the broader market for smartphones in general within the United States. It argues that Apple abuses this market power to disadvantage rivals and degrade quality for users outside of its “walled garden” ecosystem. 

The complaint asserts Apple achieves this through five major abusive practices: (1) it discouraged the development of “super apps” which are written in programs that can be used across platforms and therefore accessed by any user regardless of what kind of phone they have; (2) it suppressed cloud gaming apps that reduced dependence on its own hardware; (3) it degrades messaging quality purposefully between iPhone and other smartphone users to discourage iPhone users from leaving the ecosystem and encourage others to join it; (4) it doesn’t allow non-Apple smartwatches to interoperate with its ecosystem; and (5) it doesn’t allow external digital wallet app developers access to a key input they would need to compete with Apple Pay through the app store. 

If Apple can make the case that these business practices were instituted to the benefit of consumers, it may be tough for the government to persuade the court that the practices are illegal. The toughest to defend may be the third assertion, of which smartphone users have been increasingly suspicious. An added wrinkle is that the group of “consumers” alleged to be harmed in an antitrust case has sometimes varied throughout the era of the consumer welfare standard, as Greg Werden, a former economist in the DOJ’s antitrust division, notes in this podcast conversation. For instance, is the relevant group of consumers users of iPhones or all U.S. users of smartphones? 

An editorial in the Wall Street Journal released the same day the case launched claims that, while most apps on Apple’s app store are free, the number of paid developers using the store increased by 374%, to 5.2 million, over the last decade. The company also has claimed that the global commerce facilitated by the store increased from $685 billion to $1.1 trillion, or 64%, over the years 2020-2022. If these numbers are true, it could be difficult for the government to convince the court that consumers have been harmed in a traditionally monopolistic method of raising prices and lowering output. 

The outcome of this and other major cases will show if we’re moving toward a “competitor welfare” policy as opposed to a consumer welfare policy. This would more closely resemble the European Union’s competition policy system, an example which many modern antitrust advocates hope the U.S. will follow. In the EU, many more investigations into unilateral conduct are opened, typically at the instigation of the defendant’s rivals or firms it transacts with. A relevant example is the recent 1.8 billion-euro fine levied against Apple by the European Commission at the conclusion of an investigation that was launched after an initial complaint by Spotify. 

A strand of the industrial organization economics literature in the latter half of the 20th century explored how antitrust law could be used by firms to gain an advantage over rivals, i.e. to subvert competition rather than protect it. During this time, the consumer welfare standard took its place as the lodestar of antitrust enforcement alongside of the “end of history” where liberal open markets and democracy were seen as the new hegemony. 

However, antitrust has not been immune to the rise of populism in recent times, as demonstrated by the Biden administration enforcers zeal for targeting consolidation (“big is bad”). However, it seems that their cases against big tech, contrary to what they’ve stated before, attempt to make the case for harm to consumers and innovation. It remains to be seen whether they can successfully make that case in court. 

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