“We’re not living in Kansas anymore, Toto.” The world is a big, brawling, sprawling little planet made up of large fiefdoms and strong-armed politicians and business leaders. Remember, earth is a capitalist planet where everybody is out to get your money.
How is that not a perfect place for monopolies to thrive?
In some countries, a monopoly is a good thing. In others, well, not so good. At least, not so good on paper tiger laws. In reality, monopolies thrive. Apple has a few monopolies of its own.
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity.
Need apps for your iPhone or iPad? For the vast majority of us, the App Store– Apple’s App Store– is the only source.
Is that bad?
Holding a dominant position or a monopoly in a market is often not illegal in itself, however certain categories of behavior can be considered abusive and therefore incur legal sanctions when business is dominant.
A monopoly is not necessarily illegal, but it can be; especially if its position becomes abusive to the competition.
This is what a monopoly looks like:
- Profit maximizer: Maximizes profits.
- Price maker: Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm.
- High barriers to entry: Other sellers are unable to enter the market of the monopoly.
- Single seller: In a monopoly, there is one seller of the good, who produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.
- Price discrimination: A monopolist can change the price or quantity of the product. They sell higher quantities at a lower price in a very elastic market, and sell lower quantities at a higher price in a less elastic market.
Look at Apple Inc. Is that definition close to how Apple does business? Yes. Apple maximizes profits via higher prices and large gross margins. While Apple does not set prices, on the App Store it sets minimum prices, and price increments. Plus, Apple sets a higher than high barrier to entry by blocking third party opportunities to compete with the App Store, and remains a Single Seller for almost all iPhone and iPad customers.
Price discrimination is a slightly different area, but Apple could be accused of monopolistic abuse by promoting its own products on the App Stores vs. competitors.
What does that mean for customers?
Apple creates its own bubble-wrapped economy, the so-called walled garden, where only Apple competes with Apple, and that means the company grows fat, sassy, dominant, and rich while customers pay prices that are the highest in the industry.
Apple could use some competition to its stores; online and brick and mortar, but with fewer outlets competing with Apple, customers are left paying higher prices.
That’s a monopoly and a form of abuse and that’s bad for customers.