Significant attention has recently been paid to Apple’s behavior concerning the iPhone and App Store. In this paper, I employ economic theory concerning tying behavior to better understand the economic forces behind Apple’s behavior, and the extent to which intervention is justified. I identify three plausible motivations for Apple’s behavior – efficiency, price discrimination, and leveraging its market power – and discuss what each suggests concerning whether intervention is justified. The conclusion is that only the leverage argument provides a plausible rationale for intervention. In addition, this argument suggests that the case for intervention is stronger if Apple’ tying behavior concerning the iPhone and App Store significantly negatively affects the supply of apps.
By Michael Waldman1
I. INTRODUCTION
Apple’s behavior concerning the iPhone and the App Store has attracted significant antitrust scrutiny. This includes the recent Apple-Epic case, attention from both U.S. and European antitrust authorities, and scrutiny from the U.S. Congress which is considering updating U.S. antitrust laws. This raises a number of related questions. Is this attention justified? Is Apple violating the antitrust rules in either market? Should Apple be forced to change its behavior concerning the iPhone and the App Store?
In this paper, I shed light on these questions by discussing what the economic theory of tying tells us about Apple’s behavior. As I discuss in t
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