The Antitrust Case Against Apple

Plus, Biden bashes L.A.; Chinese electric cars as a security threat

Apple’s encouragement of use of phones to pay is one of the things the government claims is an antitrust violation, because it supposedly makes iPhone users more reluctant to switch to Google/Alphabet’s Android. Apple handout photo.

Apple shares were down 4 percent or so this afternoon, on a day the stock market was trading up overall, after the Justice Department and a bipartisan collection of state attorneys general filed an antitrust lawsuit against the company. It was a fine illustration of how regulatory action can destroy market value. Four percent of Apple’s roughly $2.6 trillion market capitalization is more than $100 billion, destroyed by Attorney Merrick Garland.

The complaint is also fascinating for the anticapitalist mindset it discloses, and for the tendentiousness with which it portrays the facts.

For example, it defines a separate market for “performance smartphones,” and then says Apple’s share exceeds 70 percent. Why not define the market as cellphones overall?

It says “Apple’s share among key demographics, including younger audiences and higher income households, is even larger.” Neither the Sherman antitrust act nor the Clayton antitrust act make any mention of “key demographics” in defining market power.

The complaint says that “today, Apple charges as much as $1,599 for an iPhone.” Yet given the improvements in the technology—the phones are now water resistant, the screens are less shatter-prone, the cameras are better, the internet connections are faster—the prices for the entry-level phones have actually stayed remarkably accessible. I’ve bought four of those phones over the past few years for my family and we typically wind up paying for them interest-free over two or three years at 11 or 20 dollars a month via deals with cellular carriers. You can buy a refurbished, unlocked iPhone 12 for $449 at Apple.com. You can get a new, nonrefurbished iPhone SE for $429. The original iPhone sold for $499 when it came out in 2007. What kind of “monopoly” is it when the price goes down over time and the product gets much better?

The Justice Department’s main gripe seems to be that Apple is making a lot of money. “In fiscal year 2023, Apple generated annual net revenues of $383 billion and net income of $97 billion. Apple’s net income exceeds any other company in the Fortune 500 and the gross domestic products of more than 100 countries,” the complaint says. Fortunately, no U.S. law yet prohibits building a profitable business, much as the Biden administration and the state attorneys general might like to pass such a law.

The complaint also says, “In fiscal year 2023, Apple spent $30 billion on research and development. By comparison, Apple spent $77 billion on stock buybacks during the same year.” Biden and Congressional Democrats have imposed a tax on stock buybacks. The New York Times has endorsed a ban on stock buybacks while also, hypocritically, buying back its own shares. Biden has proposed quadrupling the stock buyback tax. But so far, there’s no U.S. law mandating a ratio of spending on research and development relative to stock buybacks. It’s certainly not mentioned in either the Sherman or the Clayton acts. So what’s it doing in the complaint other than to express a sort of generalized Biden administration dismay at the fact that Apple shareholders have prospered?

The part of the government’s complaint I’m most sympathetic to is the one about the green bubble/blue bubble problems with the Apple messaging app.