Antitrust and Technology

pullquote antitrust and technology

Today the Justice Department Antitrust Division sued Apple. This is another case where antitrust and technology butt heads. Here’s the headline on their press release:

Apple’s Broad-Based, Exclusionary Conduct Makes It Harder for Americans to Switch Smartphones, Undermines Innovation for Apps, Products, and Services, and Imposes Extraordinary Costs on Developers, Businesses, and Consumers.

This is ludicrous.  According to IDC, Apple’s market share in the smartphone market is about 25%.  Android phones make up most of the other 75%. What kind of antitrust case goes after a company with less than a 50% market share?

IDC market shares Antitrust and Technology

(click to see original article on IDC website)

Among the questionable accusations is this hysterical claim:

Diminishing the Functionality of Non-Apple Smartwatches. Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.

That’s right.  To use an Apple Watch you need an iPhone.  What a surprise!

Jess Miers meme antitrust and technology

(click for larger image) Posted here with permission from Jess Miers.

Luckily, our old pal Brian Albrecht knows about some recent research into the outcomes of the Microsoft antitrust case.  The Microsoft case was brought by the Antitrust Division in 1993. (Wikipedia has a long, thorough summary of the case.) This was after the FTC deadlocked with a 2-2 vote on filing a case.  Eventually, Microsoft won, the company was not broken up, but they did settle with Justice by getting rid of the requirement that the Internet Explorer web browser had to be bundled with Windows.  I strongly recommend reading the Wikipedia entry to learn the gruesome details.

The researchers were Sruthi Thatchenkery (University College London) and Riitta Katila (Stanford University).  Their paper isInnovation and Profitability Following Antitrust Intervention Against a Dominant Platform: The Wild, Wild West?” Here’s their abstract:

Drawing on research on competitive repositioning, we examine how an antitrust intervention against a dominant technology platform prompts changes in competition in an ecosystem, in turn influencing complementor and platform performance. In particular, we argue that sparking new opportunities for complementors by weakening a dominant platform’s market power can drive increases in innovation but dampen the viability of the platform ecosystem by reducing profits. Using a novel dataset on enterprise infrastructure software from 1998 to 2004 and a difference-in-differences design using matching and synthetic controls, we examine the relationship between the U.S. Department of Justice’s antitrust intervention against Microsoft (dominant enterprise server platform) and subsequent innovation and profitability by infrastructure applications firms (enterprise complementors). The data show thatinnovation—measured by citation-weighted patents—is increased following the antitrust intervention. However, profitability is reduced. The counterintuitive finding is that antitrust intervention benefits ecosystems in the form of innovation but may threaten the financial viability of some of the very firms it is meant to help. Our results contributeto understanding links between competition and innovation, and the opportunities and threats related to dominant platforms in their ecosystems.

Got that? Probably not.  Luckily for us, Dr. Albrecht has a translation.

 

 

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.