by Diar Turkmani, in collaboration with the Economics Student Society
The European Commission has recently ruled against Apple in favor of Spotify over a recent antitrust legal dispute. What are the main reasons behind this legal dispute, what are its implications, and how does this recent battle help us understand the relationship between private markets and government regulatory bodies better?
One of the most contentious topics in applied economic theory is the economics of antitrust laws. Since the dawn of the industrial revolution (and even before), the relationship between the state and economic monopolies (usually, in fact, they are one and the same) has been a matter of intense debate among nations, leaders, policy makers, and most notably, economists.
People who subscribe to democratic socialism or Keynesian views believe that the increased role of the state should involve the act of regulating private entities that engage in anti-competitive action and even breaking down companies that are too large to compete with. In contrast, neo-classical economists – and even more radical economists that subscribe to the Austrian school of thought – claim that most monopolies (and anti-competitive behavior) comes from government intervention in the first place. In an effort to stimulate dialogue on campus that tackles both political economy and business, perhaps a rather interesting case study to further develop our thoughts on this would be the (not-so) recent legal war happening between Apple and Spotify.
On March 4, 2024, Daniel Ek, chairman and CEO of Spotify, the largest music streaming service platform in the world, released an explosive video on LinkedIn explaining his take on the European Commission’s recent ruling against Apple. For context, Spotify filed a legal complaint against Apple to the Commission in 2019 claiming it is weaponizing its iOS platform and Apple Store to force competitors like Spotify to charge unfair higher prices to its customers. In the video, Daniel Ek boldly claims that “Apple has decided to close down the internet and make it theirs”. Ek then proceeds to generally break down how Apple has created a conflict of interest between its iOS platform and Apple Music, its own music-streaming service, then provides an explanation of how he thinks there’s way more to be done and that the battle is far from over.
In essence, what Apple does on the iOS platform is that it imposes a 30% tax on companies that use Apple Store’s in-app services. If they choose to not pay this tax, Apple enforces a list of restrictions such as preventing such companies from marketing their subscription plans or updates and releases. As a result of this, Spotify naturally has to increase its prices to off-set the cost of the tax while at the same time maintain a sustainable marketing campaign that can acquire new customers and retain existing ones. However, with the launch of Apple Music, Apple does not enforce this 30% tax on Apple Music (obviously), and as a result has more leeway to charge at a lower price. In fact, Spotify initially raised its subscription plan (in Europe) from 9.99 euros to 12.99 (30% increase) to deal with this tax. However, to compete with Spotify’s services, Apple released its subscription at 9.99 euros, making it 23% cheaper than Spotify’s premium plan. As a result, Spotify had to cut down its price by refusing to pay the tax, but has since then suffered the consequences of not being able to market its product offerings to iOS users.
Five years after the complaint, Brussels has ruled against Apple and fined them a hefty 1.8 billion euros as a consequence of their claimed anti-competitive behavior, marking it as the first time Apple has been penalized for breaching EU regulations and laws. In fact, this fine is the third biggest antitrust fine the Commission has imposed, marking it as a turning point in Apple’s role and brand image in Europe. In response, Apple released a statement stating that the Commission is essentially hindering growth in a dynamic and fast-growing market. It also plans to appeal the decision, which indicates that this legal battle is here to stay for years to come at the least.
This ruling on Apple comes as a series of crackdowns on Big Tech giants such as Google and Meta as a result of the EU’s novel Digital Markets Act (DMA), which Apple is required to comply with by March 7.
In his video, Ek states that he still remains skeptical about the outcome of this ruling due to two main reasons. Firstly, he claims that Apple has a “history of skirting these rules”. Apple has lost cases on numerous occasions both in Europe and South-East Asia yet has managed to keep itself afloat by vaguely complying or ignoring such rulings. This poses genuine questions as to how easy it is for corporate behemoths that have such strong market power to ignore legal rulings due to their overall influence in the economy. Secondly, he claims that not only is Apple likely to avoid the ruling, it is likely to skirt around the Digital Markets Act as a whole, as a huge portion of this act targets some of the business tactics that Apple uses to fastrack its business expansions and retain its customers.
One might think that this crackdown is something unique to Europe, given that the Old Continent is known for having a generally stronger regulatory environment compared to the US, the self-claimed “mother of capitalism”. However, on March 21, the US Department of Justice took matters into its own hands by also suing Apple in an antitrust case, claiming that its entire ecosystem (from Apple Watch to Apple Pay) reinforces and augments its monopoly over the phone market.
All in all, the situation for Apple doesn’t look propitious across both sides of the Atlantic. Only time will tell how this will influence global perception of Big Tech as a whole, and Apple in specific.
However, to bring this back to economics and political theory, what does this legal battle teach us about the relationship between the market and the state as a whole? As a libertarian myself, I am always skeptical of bureaucrats who barely have any business acumen seeking to dictate market outcomes. After all, it is Apple’s own operating system (iOS), and it should have the right to dictate the conditions that companies must adhere to if they seek to sell their services on its platform. At the same time, it is really difficult to argue from a utilitarian perspective that what Apple is doing is advantageous and to the betterment of society. Apple has grown into a behemoth that provides services across the board (music, finance, software, hardware, etc..), and there is no question that it has capitalized on its size to wipe out competitors and put them at a disadvantage. Is there a point where its actions should be held accountable? The answer to this question lies in seeing the results of this crackdown but also returning to political thought and economics in order to revisit our notion of social contracts, our relationship to governments, and the structure of private markets in a fast-paced, volatile global economy.
Sources:
Time to Play Fair. (n.d.). Frequently Asked Questions. Retrieved from https://www.timetoplayfair.com/frequently-asked-questions
Espinoza, J. (2024, March 4). Apple fined €1.8bn for breaking EU law over music streaming. Financial Times. Retrieved from https://www.ft.com/content/05606b16-8c4d-4535-893e-af909fcf22f0
Al Jazeera. (2024, March 4). EU hits Apple with $2bn antitrust fine following Spotify complaint. Retrieved from https://www.aljazeera.com/economy/2024/3/4/apple-hit-with-nearly-2bn-eu-antitrust-fine-in-spotify-case
CNBC. (2024, March 21). DOJ sues Apple over iPhone monopoly in landmark antitrust case. Retrieved from https://www.cnbc.com/2024/03/21/doj-sues-apple-over-iphone-monopoly.html
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