Eletiofe Why Lawmakers Are Interested in Apple’s and Google’s ‘Rents’

Why Lawmakers Are Interested in Apple’s and Google’s ‘Rents’

-

- Advertisment -

Josh Hawley had some questions about how Apple came up with the money to buy back $58 billion in stock over the past year.

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

I suspect you, unlike me, had better things to do on Wednesday than watch the Senate antitrust subcommittee hearing on Apple’s and Google’s mobile app stores. But if you did tune in, and you’re not an economist, you might have been baffled by that exchange. What is a monopoly rent—a term that was mentioned over and over at the hearing—and why is it bad? What does it have to do with app stores?

In economics, the concept of rent refers to money that a business makes in excess of what it would get in an efficient, competitive market. In other words, it’s money that isn’t earned by actually creating value. When corporations lobby government to give them a tax break or a special regulatory favor, they are often accused of “rent seeking.” It’s a pejorative term, and the precise limits of it are up for debate; it can be hard to draw the line between fair profits and unreasonable rents. But the basic premise is that businesses should try to get rich by improving their products and services, not by gaming the system.

Rents are a central concern of antitrust law. One of the most basic reasons why monopolies are bad is that when a company takes over a market, it can raise prices without worrying about being undercut by competitors. A “monopoly rent” is thus the money that a monopolist earns not because it offers the best product or service, but merely because it has the power to charge more. Which is exactly what the subcommittee accused Apple and Google of doing. Each company forces app developers to use their payment systems for digital purchases made within apps downloaded through their stores. And each takes up to a 30 percent cut of those purchases. This state of affairs costs companies like Spotify, which testified at the hearing, a huge amount of money, because Google and Apple control the entire mobile operating system market: Any customer who signs up on their phone, rather than on desktop, has to go through the app store toll booth. (Technically Google allows apps to be “side loaded,” without using its app store, but in practice few people bother to do that.) The commission is also at the heart of the video game developer Epic’s civil antitrust lawsuits against both companies. And, according to the senators who took Apple and Google to task, it leads app developers to pass those higher costs on to consumers.

At the hearing, Google’s and Apple’s representatives argued that most developers don’t end up paying the 30 percent rate. But they also insisted that the commission, which the biggest, most revenue-generating apps do have to pay, are competitive and industry standard. The problem is, they are the whole US industry. And no one on the antitrust subcommittee, from either party, seemed persuaded that the tens of billions in annual revenue the companies make via the commission represent anything close to what they would make if they didn’t have such control over the app market. As subcommittee chair Amy Klobuchar put it toward the end of the hearing, summing up the views of her Democratic and Republican colleagues, “I just think there’s something pretty messed up about this.”

The in-app payment commission is not the only app-store-related accusation being lodged against Apple and Google. Among other things, they also stand accused of using their access to competitors’ data to inform their own proprietary apps, and then preferencing those offerings. (In one spicy moment, Senator Richard Blumenthal asked whether the companies maintain a firewall between the teams handling data from the app store and the teams responsible for product design. The answer was not yes.) But the commission looms especially large because it is perhaps the purest distillation of monopoly rents from all the Big Tech antitrust inquiries. This helps explain why the subcommittee was uncommonly, almost eerily on-message—the usual grandstanding and weird off-topic partisan rants were basically absent. The term “monopoly rent” might be jargon, but the concept it describes is intuitive. Don’t underestimate the power of a simple argument. Google’s and Apple’s alleged rent-collecting days might be numbered.


More Great WIRED Stories

Latest news

The Best Way to Get a VR Workout (That’s Also Fun)

You’ve probably heard that VR headsets can be used to get a decent workout. It might even be...

Geology Students Did Fieldwork During Covid—With Video Games

This story originally appeared on Atlas Obscura and is part of the Climate Desk collaboration.If you decide to...

The Wondrous, Tedious Ocean of Subnautica: Below Zero

A spacecraft hurtles towards an inhospitable alien planet, crash-landing on a freezing tundra. I escape from the wreckage, nearly...

WhatsApp’s New Privacy Policy Just Kicked In

At the beginning of the year, WhatsApp took the seemingly mundane step of updating its terms of use...
- Advertisement -

Understanding the Anatomy of Vaporizers – All You Need to Know!!

This way, you know how to clean and maintain your device and enjoy the vaping experience to its fullest....

New Mask Guidance, Shots for Teens, and More Coronavirus News

The CDC issues new guidance for people who are vaccinated, young teens start getting shots, and the pandemic rages...

Must read

The Best Way to Get a VR Workout (That’s Also Fun)

You’ve probably heard that VR headsets can be used...

Geology Students Did Fieldwork During Covid—With Video Games

This story originally appeared on Atlas Obscura and...
- Advertisement -

You might also likeRELATED
Recommended to you