Monday, July 20, 2009

Does Apple Have a Monopoly With the iPhone and iTunes?

A writer at PCWorld thinks that Apple's iPhone content market should be broken up to allow competition. Unfortunately David Coursey’s economic reasoning is all wrong. His ideas rest on his assumption that the Apple iTunes store is a monopoly.

The Apple iTunes store is not a monopoly. As Coursey writes in his article music can be purchased from many other firms, virtual and brick and mortar, then loaded onto a handheld devices. A monopoly is a market that has only one seller. In the area of applications for the iPhone and other Apple devices there also does not exist a monopoly. Apple is not the only seller. There are thousands of sellers. The iTunes app store is essentially a virtual mall where each developer sells his or her apps. Apple is, for the sake of this metaphor, the owner of the mall.

A deeper analysis of the argument would lead us to conclusion that the iPhone, iTunes and the iTunes store are bundled products. Bundling is way for firms to move multiple products together. You get iTunes for free because you bought the expensive iPhone. If Apple were to unbundle these products iTunes would no longer be free. It is likely that the price for products on the store would rise from their current “prices low” enough that the remorse of a bad purchase is negligible.

There may also be added costs to consumers if the package is unbundled. The time or search costs associated with finding the right application would increase.

You want to tackle a problem get Apple to distribute the phone to other carriers.

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