Why so many lawmakers are interested in Apple and Google’s “income”

He had Josh Hawley some questions about how Apple raised money to buy a $ 58 billion stock last year.

“I want to focus on a major source of that revenue,” the Republican senator told Apple’s attorney. “It’s not innovation, it’s not research and development. These are the monopoly incomes you collect in your app store. “

I suspect, unlike me, that you did better on Wednesday than hearing the Senate Monopoly Subcommittee on Apple and Google’s mobile app stores. But if you’re tuned in and you’re not an economist, you might be surprised by this exchange. What is a monopoly lease — a term that has been mentioned repeatedly in the hearing — and why is it bad? What does it have to do with app stores?

In economics, the concept of rent refers to the money a business earns above what it would get in an efficient and competitive market. In other words, it is money that is not earned by creating value. When corporations lobby the government to give them a special tax cut or regulatory benefit, they are often accused of “seeking rent”. It is a pejorative term, the exact limits of which are debatable; it can be difficult to draw the line between direct profits and fair rents. But the basic premise is that we should try to enrich businesses by improving products and services, not with the system game.

Income is the main concern of the antitrust law. One of the most basic reasons for a bad monopoly is that when a company takes over a market, it can raise prices without worrying about declining competitors. “Monopoly rental” is therefore the money that a monopolist earns, not because he offers the best product or service, but because he has the ability to charge more. Which, in fact, is what the subcommittee has accused Apple and Google of. Each company forces app developers to use their payment systems for digital purchases made in apps downloaded from their stores. And each takes a 30 percent cut from those purchases. This situation costs a huge amount of money for companies like Spotify, which said at the hearing, that Google and Apple control the entire mobile operating system market: any customer who needs to sign up on the phone rather than the desktop must go through the app store toll booth. (Technically, Google allows apps to be “side-loaded” without using its app store, but in practice few people care about that.) The commission is at the heart of the civilian developer of Epic video games. antitrust lawsuits against two companies. And, according to senators who took Apple and Google to task, app developers are leading these higher costs to be passed on to consumers.

At the hearing, representatives of Google and Apple argued that most developers do not pay a 30 percent rate. But they also stressed that the commissions, which must be paid for by the largest revenue-generating applications, are competitive and industry standards. The problem is, them are The entire US industry. And no one on the antitrust subcommittee, on either side, seemed convinced that the $ 10 billion in revenue that companies earn through the commission would have something to do with what they would do if they didn’t have control over the app market. As subcommittee chair Amy Klobuchar said toward the end of the hearing, summing up the views of her Democratic and Republican colleagues, “I think there’s something pretty confusing about this.”