Accurate, Focused Research on Law, Technology and Knowledge Discovery Since 2002

Why lawmakers are so interested in Apple’s and Google’s “rents”

Ars Technica:  You can’t understand the app store debate without some grasp of antitrust jargon. [Note: Primary reference is Senate Judiciary Committee, Subcommittee on Competition Policy, Antitrust, and Consumer Rights, hearing held April 21, 2021] “In economics, the concept of rent refers to money that a business makes in excess of what it would get in an efficient, competitive market. In other words, it’s money that isn’t earned by actually creating value. When corporations lobby government to give them a tax break or a special regulatory favor, they are often accused of “rent seeking.” It’s a pejorative term, and the precise limits of it are up for debate; it can be hard to draw the line between fair profits and unreasonable rents. But the basic premise is that businesses should try to get rich by improving their products and services, not by gaming the system. Rents are a central concern of antitrust law. One of the most basic reasons why monopolies are bad is that when a company takes over a market, it can raise prices without worrying about being undercut by competitors. A “monopoly rent” is thus the money that a monopolist earns not because it offers the best product or service, but merely because it has the power to charge more. Which is exactly what the subcommittee accused Apple and Google of doing. Each company forces app developers to use their payment systems for digital purchases made within apps downloaded through their stores. And each takes up to a 30 percent cut of those purchases. This state of affairs costs companies like Spotify, which testified at the hearing, a huge amount of money, because Google and Apple control the entire mobile operating system market: any customer who signs up on their phone, rather than on desktop, has to go through the app store toll booth. (Technically Google allows apps to be “side loaded,” without using its app store, but in practice few people bother to do that.) The commission is also at the heart of the video game developer Epic’s civil antitrust lawsuits against both companies. And, according to the senators who took Apple and Google to task, it leads app developers to pass those higher costs on to consumers…”

Sorry, comments are closed for this post.