Hey Siri, Is Apple a Monopoly?

The DOJ is going after Apple with the hopes of making things fairer in the marketplace. They're hoping that consumers can get more choices and potentially better deals in the future.

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Photo by Andy Wang on Unsplash

Many of us have smartphones that double as our digital sidekick, buzzing with updates, apps, and, of course, text bubbles from friends and family. If all your close friends and family have iPhones, your chats are full of blue bubbles. But every iPhone user has that one person who sends them important information via a green bubble. If you’re tired of the blue vs. green bubble debate, you could easily switch from your iPhone to, say, a Samsung Android, right?

But here’s the problem: Apple has made some business decisions that might make you think twice before you leave. That’s why the U.S. Department of Justice has decided to look a little more closely at Apple’s behavior. To be clear, there is nothing physically preventing iPhone users from switching over to an Android-based phone or even joining the “dumbphone” movement. But it’s not just about losing your favorite apps or changing the color of your text bubbles; it’s about how much it could cost you to make the switch.

In the most literal definition of a monopoly, there would only be a single firm in the market. Under that strict definition, the smartphone industry is not a monopoly. But the Federal Trade Commission (FTC) and the Department of Justice (DOJ) don’t only investigate monopoly markets. They also investigate firms that behave like monopolies, and the FTC believes that Apple has taken monopolistic steps to lock its customers into using a product that could be better if it allowed more companies to compete with them. The FTC’s role is to keep competition fair and active, especially for us, the consumers.

Barriers to Entry

While the smartphone market may not be a literal monopoly, Apple can still make business decisions that resemble monopoly behavior. The Sherman Antitrust Act forbids “restraint of trade” and makes it unlawful to “monopolize” or “attempt to monopolize,” while the Federal Trade Commission Act forbids “unfair methods of competition.”

One of the classic signs of monopolistic behavior is to erect significant barriers to entry for new competitors. One such example of this behavior, according to the DOJ, comes from the way that Apple manages its App Store. The store itself isn’t a problem, but the DOJ argues that slapping a 30% fee on sales is a problem. Want to launch an app? You have to play by Apple’s rules, which can be pretty strict and costly. This makes it tough for smaller developers to get on the iPhone.

And what seems like a perk at first becomes the second example of Apple’s monopolistic behavior. Apple’s gadgets all sync so seamlessly that once you’re in, you’re in. This "walled garden" approach means many users stick with Apple, not necessarily because they love it, but because it’s a hassle to leave. This has been especially true in the market for smartwatches. The DOJ alleges that “Apple has limited the functionality of third-party smartwatches so that users who purchase the Apple Watch face substantial out-of-pocket costs if they do not keep buying iPhones.”

Consumer Welfare Outcome

To be clear, there is debate about the social benefits of monopolies. Some people argue that having one big player in the market could be a good thing. They say it leads to innovation—think about all those cool new features we get—or even lower prices thanks to something called economies of scale. That’s just a fancy way of saying that making stuff in bulk can reduce costs.

But—and it’s a big but—these perks aren’t a sure thing. Companies with a lot of market power can innovate to gain even more power, or they may prefer not to play so nicely. They can hike up prices, offer us fewer choices, and maybe even put a pause on coming up with new stuff because, well, who’s going to challenge them?

The DOJ argues that Apple’s practices are making consumers spend more—not just when buying its products directly, but also because Apple charges app developers high fees. And guess what? Those developers often pass these costs on to us, the consumers. And remember the “walled garden” that many Apple users find beneficial? This doesn’t just affect how we feel about our text messages—it can limit how well Apple products work with others, potentially stifling innovation. Apple doesn’t have to try as hard if there’s no real competition breathing down their neck.

Government Solutions to Monopoly Power

So, when a company starts looking more like a monopoly, what can be done? This is where the government steps in with what we call antitrust lawsuits. These lawsuits are specifically designed to tackle issues where a company has too much control over a market. There can be some pretty heavy consequences. In the past, companies have had to sell off parts of their business, change how they do things to help out their competitors, or in really dramatic cases, break up into smaller, less powerful companies.

Now, focusing on Apple, the government could ask Apple to change how it runs its App Store, cut down the fees it charges developers, or make its products play nicer with competitors’ devices and services. The idea here is to lower the hurdles for other companies to enter the market, which could spark more competition. The DOJ argues that its antitrust case against Microsoft in the 1990s paved the way for a nearly bankrupt Apple to launch the iPod. More competition could mean more options for us as consumers and, fingers crossed, better prices.

Final Thoughts

The real question is, how do companies like Apple innovate and protect their inventions while still playing fair with competitors who also want a piece of the pie? It seems simple to say, "just make everything compatible," but it’s not that straightforward. Imagine asking every Apple user if they feel their choices are limited. Chances are, they’ll say no. And the same goes for Android users.

This isn’t just about pinning a "monopoly" label on Apple. It’s more about understanding the bigger picture—how Apple’s actions could shape the rules of the game in the tech world. As we watch this legal showdown unfold, it’s going to spark a lot of conversation about the balance between innovation and competition in big tech. In the past, antitrust cases seemed more cut and dry. But in today’s tech landscape, these issues are far more complex. What happens with Apple could set new standards for how tech giants operate and compete.

• 15% of U.S. adults say they do not use broadband at home, but own smartphones [Pew Research Center]

• The FTC employs 1,092 full-time employees while the Department of Justice employs 113,490 full-time employees [U.S. Equal Employment Opportunity Commission]

• Even as Americans believe they use their smartphone too much, 21% say it has made their life "a lot" better and 44% "a little" better [Gallup]

• Overall, 68% of adults say major tech companies have too much power and influence in today’s economy [Pew Research Center]

• At the end of 2023, Apple had ended Samsung Electronics’ 12-year run as the largest seller of smartphones in the world [Reuters]