Category Archives: Antitrust

Court Rules Apple App Store Rules Do Not Violate Antitrust Laws

This press release was originally posted on cei.org.

A federal district court today ruled that Apple’s rules regarding payments on its App Store do not violate antitrust laws. The case, brought by video game maker Epic Games, alleged Apple violated antitrust laws by requiring purchases be made on its own system.

Director of CEI’s Center for Technology and Innovation Jessica Melugin said:

“With a court finding it is not a monopoly, the decision is largely a victory for Apple. The company will mostly continue to operate their private property, the Apple App Store, by the rules it wishes. Apple will not be forced to allow outside payment systems from developers and the App Store can remain the exclusive app download method on iPhones and iPads. The finding that Apple is in violation of California state law under the software giant’s prohibition on developers telling users there are alternative and cheaper payment options is along the lines of concessions it has already started to make with internal policy changes and legal settlement offers. Consumers will continue to benefit from Apple’s intact security, convenience and reliability at the App Store.”    

Senior Fellow Ryan Young said:

“The wisdom of Apple’s business practices is constantly being put to the test by consumers. Their size does not protect them from flops like the Newton tablet, its failed Ping social network, or its forgotten Pippin gaming console. Same goes for the App Store’s payment and commission policies.

“The separate question of whether Apple’s App Store is a monopoly is less debatable. Making that case requires defining Apple’s market so narrowly that real-world consumers can escape its boundaries with a dozen keystrokes or less. Before Apple booted Epic’s Fortnite game from its App Store in August 2020, roughly 90 percent of Fortnite downloads came through non-App Store vendors. Epic tried to define Apple’s market this way; the court disagreed.

“Any market is a monopoly if you define it narrowly enough. But those types of language games don’t always hold up in court. Real-world considerations keep getting in the way.” 

In the News: Facebook’s Antitrust Case

I’m quoted, in French, in Paris’ Le Monde newpspaper about the FTC’s revised antitrust complaint against Facebook:

La FTC « joue sur les mots », abonde Ryan Young du think tank Competitive Enterprise Institute. Pour lui, l’autorité s’est juste « arrangée pour exclure TikTok, Twitter, Clubhouse, Discord, et d’autres de ce marché »« Tout marché est un monopole si vous le définissez de façon suffisamment étroite, et c’est la seule chose que la plainte de la FTC prouve réellement. »

An English-language version of the same story in Techxplore says:

But Ryan Young of the Competitive Enterprise Institute countered that the FTC complaint “relies heavily on wordplay” to define Facebook as a monopoly.

“It argues that Facebook dominates the market for ‘personal social networking services,’ then defines that term in just such a way that excludes TikTok, Twitter, Clubhouse, Discord and others from that market,” Young said.

“Any market is a monopoly if you define it narrowly enough, and that is the only thing the FTC’s complaint successfully proves.”

The Progressive Playbook? Thoughts on a Slippery Slope

Is there a master plan behind the blunders of governments? Or are politicians just making it up as they go along? The cabal model is tempting. A lot of people tend to believe that it is not enough for their opponents to wrong; they must also have bad intentions. But usually, less sinister explanations, such as fallible politicians responding to incentives, are a better guide to fixing today’s political mess.

For example, President Biden recently announced that he is asking the Federal Trade Commission to consider using antitrust enforcement to fight rising gas prices. The economist Jeff Eisenach tweeted in response:

The Progressive Play Book: Step 1: Use regulations to restrict supply. Step 2: Blame the oil companies for rising prices. Step 3: Invoke antitrust. Step 4: See e.g., CITCO, Pemex. We are at Step 3.

One should not read too deeply into tweets. They lack enough space either to explain nuances or to define terms clearly enough to prevent misunderstandings. Sometimes, people are just making a snarky point, and they don’t have room for a disclaimer in a 280-character tweet.

Any or all of these situations could be the case here, but Eisenach’s playbook theory tweet has a clear—and common—slippery-slope logic that is worth a closer look. This is not to single out Eisenach, but to highlight a tendency among people of all political persuasions: to assume bad motives and master plans where there probably aren’t any.

Progressives often favor adding new economic regulation, and rarely favor rolling them back. So, it makes sense that progressives would respond to rising gas prices—largely caused by regulations—with more regulations. In Eisenach’s playbook model, this story presumably repeats until the energy sector is nationalized, as with Pemex, which is owned by the Mexican government, and Citgo, in which the Venezuelan government has a stake (though it cannot benefit from Citgo’s U.S. holdings because of sanctions).

This isn’t entirely drawn from thin air. Sen. Bernie Sanders (D-VT) really has proposed nationalizing the energy industry. The Green New Deal may not be a serious proposal, but it really was introduced as legislation.

But is the slippery slope really so deliberate? Just like the GOP’s own populist extremists, the Democratic party’s progressive wing has a high decibel level, but lower numbers and influence. Yes, progressivism touts lofty ideals, such as economic equality, democracy, and environmental protection, but in practice, progressive policies tend to be less lofty and more concrete.

If some people are having trouble making ends meet, pass a law raising the minimum wage. If other people have too much money, raise their taxes. If rents are too high, use price controls or impose a moratorium on evictions. President Biden’s antitrust threat against oil producers is similarly direct. Gas prices are going up, so do something about it. Such moves don’t involve much abstract thought about long-term competitive processes, tradeoffs, unintended consequences, or rent-seeking—what economist Thomas Sowell calls thinking beyond stage one.

If anything, President Biden’s proposal mixes a layman’s misunderstanding of the 1970s oil shock from early in his career with today’s hottest political trends, such as inflation and antitrust. Availability bias is a far likelier driver for his proposal than a playbook to eventually nationalize the energy industry.

Inflation and high gas prices were important issues in the 1970s. The two are linked together in a lot of peoples’ minds to this day. Today, inflation is back over 5 percent and gas prices going up again. In his speech, President Biden even singled out OPEC, which is long past its prime as a global economic villain.

Another factor that makes the current gas price increase appear even starker is that prices are rising from a low starting point. On April 23, 2020,  gas prices averaged $1.77 per gallon, the lowest since the 2008 financial crisis. Since then, gas prices haves been on an upward trajectory, rising to $3.17 per gallon by August 16, 2021. While that is a sharp increase, thanks in large part to that low starting point, gas is still cheaper than it was for almost all of the period between 2011 and 2014.

Inflation is also not the main driver of rising gas prices. Inflation is what happens when the supply of money gets out of whack with the supply of goods and services. If it isn’t monetary, it isn’t inflation. Today’s inflation is likely responsible for about 10 cents per gallon of the price increase, out of roughly $1.40. Most of the rest comes from a mix of supply, demand, and bad regulations.

The Jones Act of 1920, which is essentially a Buy American bill for the maritime shipping industry, makes shipping domestic gas artificially expensive and increases reliance on imported oil. Both of these make gas prices higher and more volatile. The Biden administration’s decisions to deny drilling and pipeline permits and to raise some regulatory burdens are also raising prices and squeezing supply. These are not inflation, but they are raising prices.

Coincidentally, higher prices and restricted supply are the same indicators used in finding consumer harm in antitrust cases, adding potential confusion to any antitrust cases stemming from Biden’s proposal. His recently proposed carbon tariffs on imported oil would further worsen the problem.

Repealing existing regulations and walking back proposed burdens would do more to lower gas prices than adding new restrictions—but that would require admitting mistakes. Politicians generally prefer to shift the blame and then publicly punish some supposed bad guys. That is not a conspiracy; it is rational political behavior.

The state of politics is unhealthy. There are lot of changes needed at the cultural, institutional, and policy levels. While conspiratorial allegations of political playbooks and slippery slopes are tempting as explanations, a lot of bad policy simply involves politicians responding to the incentives they face with the limited knowledge they have—the same as everyone else does.

The economic recovery and the continuing long-run rise in living standards would be better served if reformers would focus their scarce resources on these, rather than on exposing sinister narratives that aren’t really there.

FTC Re-Files Facebook Antitrust Complaint

See also a CEI news release with statements from Jessica Melugin and me.

The Federal Trade Commission (FTC) submitted a revised antitrust complaint against Facebook today. In June, a judge threw out the initial complaint for not providing evidence that Facebook had a monopoly in anything. The FTC had until today to give it another try. The text of the amended complaint is here.

The new complaint has the same problem, and relies heavily on wordplay. The FTC argues that Facebook dominates the market for “personal social networking services,” which it defines in a way that excludes TikTok, Twitter, Clubhouse, Discord, YouTube, and others. By the FTC’s boutique market definition, Facebook’s biggest competitor is Snapchat.

Any market is a monopoly if you define it narrowly enough, and that is the only thing the FTC’s complaint successfully proves.

Real-world monopolies, as opposed to semantic monopolies, are characterized by rising prices, restricted supply, and slowed innovation. Facebook and its competitors show none of these characteristics. They are largely free to consumers. Advertisers pay to show their ads on Facebook and competing networks, but the prices they pay have fallen by half over the last decade—akin to a permanent 50 percent off sale compared to before Facebook got big.

Facebook is not able to restrict the supply of social networking services. New social networks are constantly rising, falling, and evolving, and Facebook cannot stop people from using them. Signing up for a competing service takes a minute or two and maybe a few dozen keystrokes. Many people also have multiple accounts on multiple social networks—how many people do you know who use both Facebook and Twitter, for example?

As for innovation, Facebook spent $21 billion on research and development over the past year. It is constantly experimenting with new features on its site in an ongoing trial-and-error process—because its competitors are, too. This is not monopoly behavior.

Nobody but lawyers are benefiting from the FTC’s ideologically charged word games. For example, a 2019 Inspector General report found that the FTC routinely pays outside experts as much as $750 per hour. In years-long antitrust cases, that can add up to millions of dollars, without creating any consumer value.

Another concern is regulatory capture. An antitrust settlement against Facebook would likely include expensive new policies involving privacy, content moderation, and more. Facebook can absorb these compliance costs; smaller startups cannot.

Facebook, with its aging user base, and seeing people under 25 moving to TikTok and other competitors, would likely be happy to negotiate such a settlement down the road. In the world of regulation, intentions and results are often very different things. Antitrust policy is no exception. The FTC’s ideological campaign is harming both consumers and the competitive process. At the very least, it should drop the Facebook case, if a judge doesn’t drop it first again.

Longer term, it is time to reconsider antitrust regulation altogether.

Relevant Markets, A Dozen Keystrokes, and the Google Play Store Antitrust Lawsuit

Yesterday, after markets closed, 36 state attorneys general announced another antitrust lawsuit against Google. This complaint centers around Google’s Play Store, in which it often charges developers a 30 percent commission. The text of the complaint is now available, and it has some problems. One of them involves yet another poorly defined relevant market, which excludes Apple’s iOS. Another problem is that it is easy for developers and consumers to avoid the Play Store and its commissions.

Regulators often say that a company dominates an unrealistically narrow market segment, then say this is proof of monopoly. This is the relevant market fallacy. For example, Sirius-XM has a monopoly on the satellite radio market. But this doesn’t matter because that narrow market competes in a far larger marketplace against traditional radio, podcasts, audio books, streaming services like Spotify, and more. Regulators allowed Sirius and XM to merge back in 2008.

More recently, two antitrust lawsuits against Facebook were dismissed in part because prosecutors intentionally excluded direct Facebook competitors such as Twitter and TikTok from their relevant market definition.

The relevant market fallacy also appears in the new Google Play Store case. Starting on page 19, the complaint argues that Google Android has a monopoly in the market for “Licensable Mobile Operating System[s].” A rule of thumb is that if a case refers to its relevant market using a boutique term that is not in common use, there is often some trickery involved.

On page 20, this turns out to be exactly what is happening. The complaint’s definition of “Licensable Mobile Operating System” specifically excludes Google’s main competitor, Apple’s iOS.

This is like arguing that a company has a monopoly, if only you ignore the competition.

The complaint is also vulnerable to the dozen keystrokes argument—alternatives are often just a dozen or so keystrokes away. On page 22, the complaint notes that consumers use the Google Play Store for “well over 90%” of Android app downloads. For the sake of argument, assume this is correct. If developers and consumers want to avoid the Google Play Store, they can:

  • Download an app directly from a developer’s website;
  • Use Amazon’s app store;
  • Use Samsung’s app store (preinstalled on Samsung phones); or
  • Buy video games from a different distributor, such as Steam.

Developers who want to avoid the Google Play Store should steer consumers to those options. If they take Google’s 30 percent commission and instead spend it on advertising, press outreach, and awareness campaigns—or build their own app store with lower commissions—they might end up with some combination of cost savings, lower prices, and boosted sales.

Even as things stand now, consumers do not have to go to much trouble to find alternatives or build new habits. If they take a chance, they just might succeed.

This happened before with Microsoft’s Internet Explorer, which went from an 85 percent market share to a 1 percent market share despite it being the default Windows option the whole time. Just as Firefox, Google Chrome, and other browsers take just a few keystrokes to find and install, app store alternatives are readily available. Prosecutors arguing that this cannot happen again are on weak ground.

Google’s Play Store does have some conveniences, for both developers and consumers. There is a centralized payment system and near-automatic installation for consumers. A ratings system helps consumers quickly figure out their best options, while boosting sales for developers who make quality apps. Having thousands of apps in one, searchable place also makes it easier for consumers to find what they want, and for developers to be found.

Maybe this is worth the 30 percent commissions, and maybe it isn’t. The answer is different for each developer and each consumer. But the ease of alternatives and the breadth of the relevant market make it difficult to prove consumer harm.

My colleagues and I will have more to say about this case later. For now, the complaint does not appear to be well argued, falling for both the relevant market fallacy and the dozen keystrokes argument.

In the News: DC’s Amazon Antitrust Case

Canada’s Les Affaires quotes me, in French, on the DC attorney general’s Amazon antitrust case that he filed yesterday Note that I am not sophisticated enough to speak French, and can barely read it well enough to get the gist of it. This is translated from an earlier statement:

Cela nuirait aussi aux PME, qui sont déjà suffisamment en difficulté en ce moment», a abondé Ryan Young, un analyste du centre de réflexion Competitive Enterprise Institute. 

Il estime en outre qu’Amazon fait déjà face à de la compétition de la part de Walmart, qui a sa propre plateforme de e-commerce ouverte aux tiers, ainsi que d’autres sites comme Ebay, Etsy ou Shopify.

Microsoft to Retire Internet Explorer: Lessons for Today’s Antitrust Cases

Microsoft just announced it will retire its Internet Explorer browser next year. This is the same program that was at the heart of an antitrust lawsuit against Microsoft in the late 1990s. There are two lessons here for today’s calls for expanding antitrust enforcement. One is that making something the default option does not guarantee that people will use it. The second is that the difference between a 90 percent market share and a laughing stock can be as small as a few years.

Internet Explorer was bundled into Microsoft’s Windows operating system, and Microsoft would not allow computer manufacturers to unbundle it. It was also set as Windows’ default browser in every new machine. It had a 90 percent market share in 2001, when the case was still active. The antitrust case argued that Microsoft’s inclusion of Internet Explorer with Windows was illegal tying—requiring consumers to buy two products together, even if they only want one of them.

The case more or less ended in a draw. The initial decision to break the company up was overturned on appeal. In the final settlement, Microsoft made some minor concessions to the government and paid about $3 billion to competitors who had sued it in separate private antitrust lawsuits.

Just a few years later, Internet Explorer’s 90 percent market share cratered. It turns out that making something the default option is not enough to make people actually use it. A succession of superior browsers, including Mozilla’s Firefox and Google Chrome, have taken turns as the leading browsers. Chrome is the current market leader with about a 65 percent market share.

As a response to the competition, Microsoft launched Edge, a new browser, and made it the default Windows browser. Its market share is currently about 3 percent. Internet Explorer is around 1 percent.

Microsoft’s real-world experience puts a damper on today’s antitrust claims that Google, Apple, and Amazon giving preferential treatment to their in-house offerings is an effective anti-competitive strategy. This is because of what I call the dozen keystrokes argument—that’s about how difficult it is to download a different browser, type in a different search engine’s URL, join a new social network, or find a different product in a search.

Internet Explorer’s journey to the pasture is not the only news story poking holes in populist antitrust arguments. AT&T is selling its WarnerMedia division for about half of what it paid for it just three years ago. The deal was nearly blocked, with critics arguing that combining network infrastructure and media content in the same company would devastate competition. Now AT&T is refocusing on networks, while WarnerMedia is attempting to compete with a raft of streaming services, many of which did not exist just a few years ago. Antitrust regulators’ cries of foul will never change, but markets always do. Just ask Microsof and AT&T.

One of Google’s Antitrust Cases Dismissed, for Now

A District judge on Thursday dismissed a private antitrust case against Google brought by a group of advertisers. It does not affect separate cases brought by state attorneys general and the federal Department of Justice.

The dismissal is rooted in the relevant market fallacy. Essentially, the advertisers’ lawyers defined Google’s relevant market too narrowly, which leaves out important details. As the judge writes, “The Court is particularly concerned that Plaintiffs’ market excludes social media display advertising and direct negotiations.”

Essentially, the attorneys argued that Google has a monopoly over Google ads. This is true, in the same way that Ford has a monopoly over Ford-branded cars. But just as car buyers can easily buy a Toyota or a Chevy despite this monopoly, advertisers can easily turn to other options, both online and in print.

The plaintiff’s lawyers until June 14 to revise and resubmit their lawsuit with a more realistic definition of Google’s relevant market.

The other antitrust complaints against Google commit their own versions of the relevant market fallacy, as I’ve noted before:

Google’s relevant market is larger than a traditional search engine page. Every Uber ride involves an Internet search to pair riders and drivers. These searches do not use a Google algorithm, and would not work if their customers’ information was “being concentrated in one company.” Netflix, Hulu, and Spotify searches do not use Google. Nor do dating sites, which compete with each other based on proprietary search algorithms, as do many other popular search-based Internet services.

The relevant market fallacy also applies to allegations of anti-conservative bias against Google. If Google acquires even the reputation of serving unreliable search results, consumers can turn to competing options by simply typing a web address into their browser. And the relevant competitive market, as noted above, is not limited to search engines. News aggregators, consumer review sites, and other relevant content sites are legion, and easy to find, even for relatively uninformed users.

I call this the dozen keystrokes argument, because that’s roughly how difficult it is to type in another website’s address.

It will be months before court dates are set in any of the Google antitrust suits. They are still in the process of deciding relevant market definitions for the purposes of the cases. As we’ve seen, plaintiffs often try to bias antitrust cases in their favor by suggesting unrealistically narrow market definitions. It is good that at least one judge is wise to this semantic trick.

On the Radio: Apple’s EU Antitrust Case

On Friday, I discussed the EU’s new antitrust case against Apple on the Lars Larson show. Audio is here.

EU Antitrust Action Against Apple – Bad for Trade, Bad for Consumers

This press release was originally posted at cei.org.

The EU Commission declared today that “Apple has a monopoly” in the distribution of music streaming apps to owners of Apple devices, the upshot of an antitrust investigation launched last year against the App Store and triggered by a complaint filed by streaming music company Spotify. CEI experts criticized the EU for what will be a poor outcome for consumers, entrepreneurs, and trade.

Ryan Young, CEI trade policy expert

“Antitrust policy can be a form of trade protectionism, similar to tariffs. Europe’s tech industry has long lagged behind America’s, largely due to the EU’s stifling regulatory climate. The EU could boost its tech industry by reforming its own bad policies, such as its corporate subsidies and overly risk-averse regulatory approach. Instead, it is trying to boost Europe-based Spotify by taking U.S.-based Apple to court.

“It is better to build up than to tear down. Europe has plenty of talented innovators and plenty of capital to fund them. The EU would better help consumers and businesses by letting its entrepreneurs innovate, rather than suing foreign competitors.”

Jessica Melugin, CEI technology policy expert

“Apple’s fees are in line with or less than the global industry standard, and Spotify has benefited greatly from the App Store’s distribution network. Spotify chose to offer its product through the App Store and now is crying to regulators in the EU and US for them to intervene and change the rules. Apparently, corporate cronyism is at home on both continents.”

Related analysis: Terrible Tech 2.0: The Most Burdensome, Anti-Consumer Technology Policy Proposals in Washington