Tilting At Antitrust Windmills: Department Of Justice Sues Apple – OpEd

On March 21, the U.S. Department of Justice filed a “sweeping” lawsuit accusing Apple, one of the Big Tech companies the Biden administration loves to hate, of engaging in business practices that violate the 1890 Sherman Antitrust Act.

Joined by the attorneys general of 16 states, the DOJ’s complaint alleges that Apple’s exclusionary tactics have allowed it to “monopoliz[e]” the U.S. market for smartphones or, keeping its legal options open, perhaps a submarket for “performance” (high-end) smartphones. According to the DOJ, Apple’s iPhone accounts for about 65 percent of the former market and 70 percent of the latter. Those market shares, however, may be larger among younger smartphone customers (Americans born after 1996).

Put another way, 30 to 35 percent of the U.S. smartphone market, as the DOJ defines it, is served by Apple’s competitors, the two most “meaningful” being Google (parent Alphabet) and South Korea’s Samsung Group. Meaningful indeed.

Apple is not a monopolist as economists understand that concept because it does not control anything close to 100 percent of the antitrust-relevant smartphone market. Apple may be big, and the iPhone may now dominate U.S. smartphone shipments, but large market shares today do not guarantee future market supremacy.

Rewind the tape to May 18, 1998. On that date, the DOJ filed a complaint against Microsoft alleging that the company “possesses (and for several years has possessed) monopoly power in the market for personal computer operating systems.” At the time, Microsoft shipped roughly 90 percent of “Intel-compatible” computer operating systems. Sales of desktops running Apple’s MacOS were then so small that it was excluded from the DOJ’s market definition.

United States v. Microsoft Corp., one of the few legal precedents cited in the DOJ’s just-issued Apple filing, ultimately was decided in the government’s favor. One of the key issues raised at trial was that Microsoft’s monopoly was built in part on its inclusion of a web browser (Internet Explorer, or IE) in its Windows 95 operating system (OS) at no additional charge.

Although supporters of the Microsoft case argued that competition would be restored only if the company was forced to separate IE from Windows 95, the presiding federal judge did not impose that remedy. Never mind! Internet Explorer has given way to Edge, released in 2010, and it too is bundled with Windows 11 OS. Meanwhile, Microsoft’s share of the U.S. desktop OS market has declined to about 60 percent; the market share of Apple’s OS X (formerly Mac OS) has climbed to just under 28 percent; nerdy open-source Linux, ignored by the DOJ in 1998, nowadays represents about 2 percent of desktop computer operating systems.

Microsoft’s “anticompetitive” bundling strategy evidently has not seriously undermined its rivals’ ability to enter the market for desktop operating systems and to expand their sales.

That’s to be expected in marketplaces characterized by so-called network effects in which the value to consumers of joining a network goes up as the number of others connecting to the same network rises. In network industry after network industry (from telephones to video-recording and video-playback technologies to computer hardware and software), we observe what might be called not monopoly but “serial market dominance.”

Because of product quality or functionality that was unknown previously or that consumers deem superior to available alternatives, one or a few sellers rise to a market’s commanding heights. But continuous innovation (Schumpeter’s “gale of creative destruction”) threatens such market dominance.

The threats can arise beyond a market’s current boundaries or from the players on its “competitive fringe.” That fringe was tiny in 1998, composing just 10 percent of “Intel-compatible” computer operating systems. In 2024, Apple’s rivals account for 35 to 40 percent of the smartphone market, as the DOJ defines it.

And those rivals, Google and Samsung, are no shrinking violets needing protection by the Justice Department’s antitrust lawyers, who apparently think they know better than smartphone buyers and sellers what the market should look like today and tomorrow. Antitrust law enforcement processes have morphed over the past few years into an ersatz industrial policy that pays lip service to consumers’ welfare but ignores consumers’ choices in favor of indulging the preferences of bureaucrats.

This article was also published in The American Spectator