Epic vs Apple

costcoIn a comment Sanjay Srivastava asked, “What do you think about the Epic vs Apple legal case? Would you allow Apple to continue their way of managing the App eco-system?”

I confess that I was unaware of the legal battle until Sanjay asked about it. I have subsequently read a bit about the case. The core conflict appears to be that Epic is challenging Apple for the latter’s decision to remove Epic from its app store for violating the Apple app store’s terms of service.

Allow me to state up front my position. I don’t think that Epic has a case, and that it is attempting to use the courts to do what it could not do, namely create its own marketplace to sell its products.

Epic wants to sell its products using Apple’s marketplace — a marketplace that Apple has created — without paying for the benefits that being on the Apple marketplace it would obtain. In short, Epic would like to free-ride. It would like to use Apple’s property to flog its wares without incurring the cost of paying for that service.

Let me use this analogy. Imagine that I have a product that I’d like to sell to a large number of customers but I don’t have a way to reach a large number of potential customers on my own. I realize that millions of people visit Acme (a large supermarket chain around here) and therefore if I put my product on Acme shelves, I’d get a lot sold.

I go to Acme and ask them to put my product on their shelves. They say, “Fine. We’d like 25% of your retail price for you to do that.” I say, “No. I will use your store but I will pay you nothing.” Acme refuses to carry my product. And then I take Acme to court arguing that Acme must allow me to put my stuff on its shelf for free.

Acme is a business. The business it is in is providing space for suppliers to sell their wares. If it does so efficiently that a large number of suppliers wish to get their products sold through Acme, then it continues to be in business. If a particular supplier finds Acme’s terms of doing business unsatisfactory, it has the freedom to go to another supermarket chain, or even create its own retail outlet. That makes sense. What does not make sense is to demand that Acme carry the supplier’s product without paying Acme for the service.

The core economic principle relates to is what is termed private property rights. Those are rights related to the acquisition, maintenance, use and disposal of property by the owner so long as that use does not violate similar rights held by another.

Societies that recognize and enforce private property rights do better than societies that don’t. I will not go into the details of the instrumental and utilitarian justifications of that here. For the moment I will only use the moral argument against property theft.

Apple created its store using its capital and technology. The Apple store is Apple’s private property; it has the right to dictate the terms of service. Firms freely choose to use that Apple’s store on Apple’s terms. If a firm doesn’t like those terms, it is free to go to a competing store (Google Play, for instance) or create its own store.

There are some reasonable-sounding objections to the position I take. One could be that Apple is a monopoly in the market that is defined by Apple products such as iPhones and iPad and the sort. Therefore it has to be controlled by the courts in the public interest. Monopolies, so the argument goes, have to be restrained from “unfair” practices. The US has “antitrust laws” against them.

Those antitrust laws don’t make sense to me from an economics point of view. I will pass on the arguments why. Here I wish to note that I am an Apple “anti-fan” — I don’t like Apple products for various reasons. I marvel at their marketing but I pity the poor sods who pay exorbitant amounts for Apple merchandise. But the customer is king. People are free to buy whatever they want — even overpriced stuff — with their money.

The bottom line is this. I hope the decision by the bench in the Epic vs Apple case is in favor of Apple. Epic needs to prove that it can compete in the marketplace without needing to steal Apple’s property.

7 thoughts on “Epic vs Apple

  1. Sanjay Wednesday May 12, 2021 / 12:58 pm

    I agree with everything you have said here and pretty much for the same reasons. What I still don’t get is why is this any different from rent seeking?

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    • Atanu Dey Wednesday May 12, 2021 / 1:24 pm

      Sanjay, it is not clear to me what you mean by “why is this any different from rent seeking.” Who is rent-seeking in this case? Apple or Epic?

      The term “rent seeking” refers to “seeking to increase one’s share of existing wealth without creating new wealth.” Apple earns profits from its store — which means it earns more in revenues than it incurs in costs. Profits are earned and simply imply the creation of wealth. Rents, in contrast to profits, imply transfer of wealth without any corresponding increase in wealth.

      Let’s consider a hypothetical situation which illustrates the distinction between rent seeking and profits. Imagine that Apple were to lobby the government for a $1 billion subsidy for its products and gets it. Then we find that Apple makes a profit of $3 billion. Then we can say that Apple earned a profit of $2 billion and obtained rents of $1 billion. That $1 billion was a transfer from the public to Apple using the government as the intermediary. The government taxed the people and handed $1 billion to Apple.

      In the context of the Epic vs Apple case, as far as I can tell there are no rents involved. Let me know if you disagree.

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      • Sanjay Wednesday May 12, 2021 / 9:44 pm

        I don’t disagree with anything you have said 🙂

        Fundamentally I don’t get the economic concept of rent from the layman’s use of the term. Is rent seeking behaviour only if a private company/individual petitions the government? Or can rent seeking behaviour exist between private companies/individuals (without seeking government help in the middle)?

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          • Atanu Dey Thursday May 13, 2021 / 9:22 am

            Sanjay,

            I would dissuade you from attempting to read the piece you linked. That’s meant for economists, not lay readers. I recommend this article by David Henderson.

            Here’s a quote from there —

            Rent seeking” is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the label in 1974. The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Security payments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors.

            End quote. Also see a previous post “A bit on Rent Seeking.”

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            • Sanjay Thursday May 13, 2021 / 12:53 pm

              Thanks Atanu. I did try to read, but as you pointed out, I lack the background knowledge to understand it. Your quote above and @prabhudesai explanation below really helped.

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        • Prabhudesai Thursday May 13, 2021 / 2:19 am

          The definition of “rent seeking” is very precise and Atanu has mentioned it in the comment.

          There are many cases where “rent seekers” are private parties and there is no government involvement.

          For example you are trying to setup a factory and an environment activist starts an agitation. Once you pay him bribe he goes away. This guy is a rent seeker and is using his nuisance value to seek that rent. This transaction did not create wealth but the activist increases his own wealth at your expense.

          However most often you will notice that rent seeking involves violence of threat of violence. The best entity to use violence is always the government hence most rent seekers try to use this most effective tool. Over years government has literally shot dead their competition in rent seeking.

          There was a time when mafia dons use to seek protection money from rich people. Now ways days that job is done by home minister and police. See the Ambani home case.

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