On Friday, Epic Games and Apple submitted tentative witness lists for their antitrust trial that will start on May 3 in Oakland. But Epic attached something far more informative: summaries of the opinions offered by its expert witnesses. In the previous post I discussed how two professors are going to debunk Apple's security pretext for its App Store monopoly. This here is the third and final part of the trilogy on Friday's filings.
When Epic Games filed its complaints against Apple and Google in August, many people thought this was just about bringing down Apple's 30% App Store commission and requiring Apple to allow Fortnite to return to the App Store despite its alternative in-app payment system. In response to Epic's activation of the latter, Apple not only removed Fortnite from the App Store but even announced the termination of another Epic developer account: the one used for the development of Unreal Engine. A temporary restraining order (TRO), which Judge Yvonne Gonzalez Rogers later converted into a preliminary injunction (PI), barred Apple from terminating the Unreal Engine account.
It's a common misbelief that Epic just wants to get Apple to reduce the 30% commission. Epic's original complaint raised some more fundamental issues, and Epic wants to open up iOS more generally for developers and consumers. The most important part here is that Epic--and others--could provide alternative app stores and thereby act as a competitive constraint on Apple in the iOS app distribution market. In its August 2020 complaint, Epic already said the following:
"Epic approached Apple to request that Apple allow Epic to offer its Epic Games Store to Apple' iOS users through the App Store and direct installation. Apple's response was an unequivocal 'no'."
"The Epic Games Store provides access to more than 250 games from more than 200 developers, and those numbers are growing rapidly. The Epic Games Store offers personalized features such as friends list management and game matchmaking services. Absent Apple’s anti-competitive conduct, Epic would also create an app store for iOS."
In Friday's summaries of what Epic's economic experts say, the possibility of the Epic Games Store (and similar app distribution channels) competing with Apple's monopolistic App Store plays a key role. Stanford professor Susan Athey discusses the importance of "middleware" with en mphasis on "an independent Multi-Platform App Store" (this post continues below the document):
376-2 Susan Athey Opening O... by Florian Mueller
Professor Athey describes today's "market for mobile smartphone operating system platforms [as] a duopoly, with market leaders Apple and Android together accounting for almost 100% of mobile smartphone revenue share outside of China." Practically, either platform is a monopoly in its own right, as "[}a user who considers leaving one platform and joining another faces app-related switching costs, including the costs of migrating and synchronizing her apps, purchases [download fees as well as in-app purchaes] and app data (and, in many cases, the costs of re-purchasing apps on the new platform)."
While multi-platform app stores, multi-platform in app-payment systems, or cross-platform streaming platforms could help, "Apple imposes a set of technical and contractual restrictions that block critical categories of middleware, interfering with the competitive process and maintaining the market power of the iOS Platform."
Another Epic expert witness, Michael Cragg, a summary of whose opinions I've uploaded to Scribd (PDF), says Apple's experts focus "on the wrong product and not Epic's role as a would-be direct competitor to the App Store." Apple would like the court to consider the entire game distribution market (across all platforms) as the relevant antitrust market, but Epic's expert says those Apple experts "do not focus on the right market definition question."
Both Michael Cragg and another Epic expert, Nancy Mathiowetz (summary of opinions (PDF)), emphasize in this context that the mere access to, or even the regular use of, alternative devices by iOS users doesn't really mean much for the purposes of this case. As Michael Cragg notes, "by [Apple's experts'] logic, refrigerators and TVs (let alone stereos and TVs) are in the same market because users 'have access' to or 'regularly use' both." But in order for the distribution of games on other platforms to be part of the same relevant antitrust market, there would have to be evidence that "a small but meaningful change in the price or quality of app distribution on either device" would make "users switch from using one distribution channel to another" to an extent that it would be a competitive constraint on Apple's own decisions.
Here's another important point:
"When it comes to distribution, iOS games do not have unique characteristics that make them separable from other iOS apps. All iOS apps (including iOS games), however, do have unique characteristics that make them separable from non-iOS apps, including non-iOS games."
Due to restrictions imposed by Apple, there is no way to access a multi-platform app store on iOS; as a result, switching costs are too high for switching to take place to a meaningful degree, which is why "iOS app distribution remains a market unto itself."
Finally, the opening and rebuttal opinions by Epic's primary expert on platform economics, David Evans, also place great emphasis on "the competitive effects of Apple's foreclosure of alternative channels of iOS app distribution":
376-8 David Evans Opening O... by Florian Mueller
376-9 David Evans Rebuttal ... by Florian Mueller
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