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Apple Pushes Back on House Antitrust Findings

By Evan Niu, CFA – Oct 8, 2020 at 10:00AM

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Lawmakers allege that the Cupertino tech giant is undermining competition.

After nearly a year and a half, the House Judiciary Committee this week released  its findings as part of a broad antitrust investigation scrutinizing major tech companies -- Apple (AAPL 3.08%), Amazon, Alphabet subsidiary Google, and Facebook. Lawmakers concluded that market power in the digital economy is highly concentrated among the juggernauts.

"In recent years, each company has expanded and exploited their power of the marketplace in anticompetitive ways," Judiciary Committee Chairman Jerrold Nadler and Antitrust Subcommittee Chairman David N. Cicilline said in a joint statement. "Our investigation leaves no doubt that there is a clear and compelling need for Congress and the antitrust enforcement agencies to take action that restores competition, improves innovation, and safeguards our democracy."

Icons of different apps and games in the App Store.

Image source: Apple.

Here's what the report  says about Apple and how the Mac maker is defending itself.

Is the App Store a monopoly?

The allegations of anticompetitive practices regarding Apple primarily relate to iOS and the App Store. The App Store is the only way for average consumers to install native apps, which critics argue represents a monopoly over software distribution on iOS devices.

"Apple's control over iOS provides it with gatekeeper power over software distribution on iOS devices," lawmakers wrote. "Consequently, it has a dominant position in the mobile app store market and monopoly power over distribution of software applications on iOS devices."

In a statement provided to MacRumors, Apple argues that it "does not have a dominant market share in any category where we do business." However, this defense is a matter of perspective and hinges on how narrowly or broadly you define the relevant market. In the context of all software distribution, Apple is surely a relatively small player. In the context of iOS software distribution, Apple is the only player.

The report notes that over half of all mobile devices in the U.S. are iPhones and iPads, although Apple's market share in smartphones globally is less than 20%.

Taking its cut

The App Store has strict policies in place regarding Apple's 30% cut of digital sales, which has come under fire from developers, particularly those that compete directly with Apple. Since in-app purchases (IAP) must be processed through the App Store, lawmakers allege that "Apple has illegally tied IAP to the App Store."

Apple says that the App Store "facilitated $138 billion in commerce" in the U.S. last year, and over 85% of that money went to third-party developers. At the same time, the 30% commission is in line with other digital stores. Apple commissioned two studies over the summer related to these defenses. One estimated that the App Store facilitated $519 billion in commerce worldwide in 2019, while another  compared the cut to other marketplaces and concluded that Apple's commission is "similar in magnitude."

The Mac maker plans to put together a more detailed defense against the allegations once it has fully reviewed the 450-page document.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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