Fortnite, one of the most popular mobile games worldwide in the last few years, has been locked in an intense battle with Google and Apple since August 2020. The creators of the popular open world RPG, Epic Games, have accused the two tech giants of abusing their monopoly power.
The disagreement started last year when Epic Games alleged that the two companies were charging unfair prices for the distribution of Apps. For most consumers, Apple’s App Store and the Google Play store are the only place to purchase and download apps. Whenever a transaction takes place, the platform takes a cut of the fee, usually around 30%. Most App developers feel that this is too much considering the time and energy which goes into developing an App, and as a result it is often the consumer who suffers as they end up paying a higher price.
Epic Games found a way to bypass the payment system by creating an in-game virtual currency which users could purchase directly from Epic. This was great for consumers who could now buy in-game items at a cheaper price, but the monopolists were not having any of it… as a result, both Apple and Google then removed Fortnite from their platforms.
Since then, Epic Games has been in a legal battle with the tech giants. Now taking them to court in multiple countries around the world, they are demanding that both Apple and Google take the following steps to relinquish some of their monopoly power over both producers and consumers:
- Allow App developers to use their own in-app payment systems
- Allow consumers more choice to download software onto their devices outside of the App Store or Google Play
Whilst the demands don’t sound that extreme, if allowed, it could potentially take a huge chunk out of the firm’s profits. And when a monopolist has monopoly power, they’re unlikely to give it up without a fight! Certainly one of the disadvantages of being a monopoly though is the constant accusations of anti-trust behaviour and abusing their power. It would be a lot easier if they were left to exploit the market freely and enjoy their supernormal profits!
It could be argued though that left to their own devices, monopoly power can actually benefit the consumer. Not only does it provide stability in the market, there is also the chance that high levels of supernormal profit can be used to invest in research and development. This could lead to gains in efficiency, lowering the firm’s average costs, and thus lowering the end price for consumers. In addition, those investments could also lead to high levels of innovation and the production of new and advanced technology for consumers to enjoy (albeit at a high price!)
That’s all assuming of course that the firms with monopoly power actually inject their profits back into the company. It could be just as likely that they choose to fill their investors pockets with generous dividends instead.
When it comes to Apple and Google, it’s easy to complain about their monopoly power but we can’t deny that we do love their products. Many of you reading this are doing so on an Apple device. Others may have found it on Google. We also can’t deny that as companies go they are pretty innovative, and provide an excellent consumer experience. So, what’s the problem then…?
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term monopoly?
Q2. With reference to the article, explain one characteristic of a monopoly.
Q3. Write a list of the costs and benefits of monopoly to both consumers and businesses (monopolists).
Q4. Draw a diagram to show a monopoly in both the short-run and long-run. Label the supernormal profit.
Q5. Evaluate the view that the market for smartphone Apps is bad for consumers.
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