Why lawmakers are so interested in Apple and Google’s ‘rent’

Josh Hawley had a few questions about how Apple found the money to buy back $ 58 billion in stock over the past year.

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

I suspect that, unlike me, you had better things to do on Wednesday than watching the Senate Antitrust Subcommittee hearing on Apple and Google’s mobile app stores. But if you’ve signed in and aren’t an economist, you might have been baffled by this exchange. What is a monopoly rent – a term that was mentioned many times in the hearing – and why is it bad? What does this have to do with app stores?

In economics, the concept of rent refers to the money a business earns in addition to what it would earn in an efficient and competitive market. In other words, it is money that is not earned by actually creating value. When companies lobby the government for tax relief or a special regulatory favor, they are often accused of “rent seeking”. It is a pejorative term, and the precise limits of it are to be debated; it can be difficult to distinguish between fair profits and unreasonable rents. But the basic premise is that companies should try to get rich by improving their products and services, not by playing with the system.

Rents are a central concern of antitrust law. One of the most basic reasons monopolies are bad is that when a company takes control of a market, it can raise prices without fear of being undercut by its competitors. A “monopoly rent” is therefore the money that a monopolist earns not because he offers the best product or service, but simply because he has the power to charge more. This is exactly what the subcommittee accused Apple and Google of doing. Every business requires app developers to use their payment systems for digital purchases made in apps downloaded through their stores. And each takes up to 30% off those purchases. This fact costs companies like Spotify, which testified at the hearing, a huge sum of money, because Google and Apple control the entire market for mobile operating systems: any customer who signs up on her phone, rather than her computer, should go. via the App Store toll. (Technically, Google allows apps to be “parallel loaded,” without using its App Store, but in practice not many people bother to do so.) Commission is also at the heart of video game developer Epic’s civilian. antitrust prosecutions against both companies. And, according to the senators who have taken Apple and Google to the task, it is leading app developers to pass these higher costs on to consumers.

At the hearing, representatives for Google and Apple argued that most developers don’t end up paying the 30% rate. But they also insisted that the commission, which the biggest and most revenue-generating apps must pay, is competitive and meets industry standards. The problem is, this is the entire American industry. And no one on the antitrust subcommittee, or any of the parties, seemed convinced that the tens of billions of billions in annual revenue that companies make through the commission was anything close to what they would earn if they weren’t. had no such control over the application market. As subcommittee chair Amy Klobuchar said near the end of the hearing, summing up the views of her fellow Democrats and Republicans, “I just think there is something very complicated about this. .

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