The executive arm of the European Union government imposed a fine of nearly $2 billion against Apple Computers for abusing its “dominant position” on music streaming in its app store. Spotify was the bruised competitor that complained against Apple under the EU’s antitrust laws. (“Apple Fined Nearly $2 Billion in Europe Over Music-Streaming Apps,” Wall Street Journal, March 4, 2024; and “Apple Hit With €1.8bn Fine for Breaking EU Law over Music Streaming,” Financial Times, March 4, 2024.)
The argument against antitrust laws can be briefly summarized as follows. Perfect competition is a positive model in economics: it simplifies reality to explain it. It is true that some economists—notably the 20th-century welfare economists—gave some normative significance to the model. But even if perfect competition is desirable, there is no reason to believe that politicians and bureaucrats could move the economy there. Moreover, as many economists (including famously Joseph Schumpeter in his book Capitalism, Socialism and Democracy) have observed, large firms that develop on free markets bring benefits to consumers. In the absence of government-built obstacles to market access (such as regulations and protectionism), large firms are anyway pushed to behave much like perfectly competitive ones, lest they lose their customers and market to new entrants. (A good introduction to the elementary theory of monopoly can be found in David Friedman’s book Hidden Order: The Economics of Everyday Life, Chapter 10.) Politicians, bureaucrats, and their courtiers seem to ignore these considerations; it is often in their interest.
One wonders why EU bureaucrats and politicians don’t go and create their own Apple–indeed, why they haven’t already done so. And why isn’t Spotify able to compete on the free market, without shouting for Big Brother’s help? Nobody in the world is forced to use Apple products and services.
Yet, many think that governments may legitimately force successful firms into their questionable competition mold, however monopolistic these governments themselves are. Spotify executives and shareholders, as well as developers of Apple apps, think it is ethical to win politically the success they are not able to achieve through competition for consumers’ patronage. Some think that this dirigisme can be consistent with the rule of law, provided that it complies with laws formerly adopted by democratic assemblies and committees, and with regulations adopted by bureaucrats hired under such a system. Much questioning and unlearning is required on these topics.
I would argue that the best word to encapsulate the EU government’s decision against Apple is: extortion.
One irony is that private high-tech companies used to think that their friendly and benevolent governments were ideologically and politically on their side. The assault against high tech in China, America, and Europe revealed the illusion.
Another dimension of the issue is the apparent belief of politicians, bureaucrats, and their admirers that any cost can be imposed on the producers of the marvels of civilization and that the production will automatically continue as before. These believers resemble José Ortega’s barbarian mass-men, who think that the conveniences of modern life are “the spontaneous fruit of an Edenic tree.”
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The featured image of this post, also reproduced below, was created by ChatGTP 4. I gave “him” a series of commands around the theme “Generate [an image of] an Apple computer as it would look like if it had been designed by politicians and government bureaucrats.” My more discrete prods included that the computer be “sustainable.” The images produced by our artificial friend were not overly original; this one was among the best. (PL)
Apple computer as politicians and bureaucrats would conceive it. Source: ChatGTP
READER COMMENTS
Craig
Mar 5 2024 at 12:43pm
One of my takeaways from Professor Boudreaux is how he describes the market as a process. Of course Professor B would likely agree with you on this topic to the extent I can infer his opinion based on his opinion in the Microsoft/Netscape matter. Indeed, coming out of school back in the 1900s, as my children refer to any time period before 2000, I was indoctrinated as a free market, free trade, limited government type of guy. What bothers me with respect to Microsoft/Netscape is that Netscape actually was better as a browser and that was an existential threat to Microsoft/Windows as an operating system. Its 2024 I’m still using Windows 11, right? For me this applies to at least a few things like certain anti-competitive behavior, price fixing, subsidies, etc. where suddenly there’s a process but that process isn’t actually leading to the discovery as to who is actually better/more efficient at producing things.
To be honest, with respect to Apple/iTunes/Spotify honestly I don’t have an opinion because I’m not that familiar with any of them and I’m not personally a fan of Apple products (PC/Samsung user). If IE beats Netscape simply because its on Windows or iTunes beats Spotify because its on an Apple platform, well, then they’re not prevailing because they’re better, they just own the mall. And if the ‘mall owner’ is a trillion dollar+ market cap company that has established itself as a major artery of commerce then ‘pigs get greedy, hogs get slaughtered’
Pierre Lemieux
Mar 6 2024 at 12:12pm
Craig: Let me try to respond rapidly to some of your interesting comments (it shows that, whey young, you were rationally persuaded of the usefulness of economic analysis).
1- You are right: I should have mentioned that the market is a discovery process (which was just implicit in my quick summary).
2- What is more efficient or not depends on consumer valuation (demand) and production costs (supply). Obviously enough consumers did not think that Netscape was more efficient than Internet Explorer, otherwise the former would have prevailed (in some bundle–see below). Of course, a large number of people can make mistakes, but what institution is better at correcting them? Market competition (as it is in the real world) or the Commerce Department (politicians and bureaucrats as they are in the real world)?
3- On your last point and in relation to #2, goods usually come in bundles (like IE with Windows or Ford wheel bolts with Ford cars) because that’s the most efficient way to produce (costs) and consume (utility) them. The market produces a large number of bundles: for example, the Kia bundle or the Porsche bundle. You cannot buy on the market a Kia with a Porsche transmission (Netscape and Windows bundled–although I seem to recall that I did use Netwcape with Windows, but perhaps I am confusing with the time I was on Apple deep into the last century). You may however buy a Kia and have its transmission replaced by a Porsche transmission, but it would quite likely cost you several times the price of a Porsche. (There is a rumor that in Heaven, where there is no resource scarcity and everything is free [except for flights back to earth], one will be able to get Netscape built into Windows, and Kias with Porsche transmissions, the two bundles being “for give” at Commerce Department and EU Commission stores.)
Craig
Mar 6 2024 at 1:52pm
Of note these are among the very same people who insist on engaging in anti-competitive bundling when they can build a moat around their castle, but who also stood in favor of net neutrality which is really just a way for the major ISPs to bundle their product/service to be a walled garden that might exclude them. Bundling for me, but not for thee?
Knut P. Heen
Mar 7 2024 at 7:27am
The standard monopoly model overemphasize/oversimplify the monopoly problem by representing the demand curve with a straight line. A demand curve which is formed like a hyperbola makes the monopoly problem less relevant. In such a situation, we can separate the consumers into two types, hardcore consumers who is willing to pay an arm and a leg for the good (on the steep part of the curve), and almost indifferent consumers who is very price sensitive (on the flat part of the curve). The firm will then have to decide whether to cater to the price sensitive ones or not. Economies of scale often push towards catering to the price sensitive consumers. The firm will then be on the flat part of the demand curve, and the monopoly firm behaves as if it faces perfect competition.
I think Apple is in this situation in most respects. I think the definition of a large corporation is that it has many customers (most of whom are not very loyal). Apple clearly has many loyal customers too, but the price is set to attract the less loyal ones. Otherwise, Apple would be a small corporation with a few very loyal customers who paid a very high price for their products (Apple is more like Fiat than Ferrari when it comes to number of customers and pricing).
My impression is also that antitrust laws are used as an excuse to tax successful corporations.
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