Apple Exploits Smartphone Monopoly to Chill Innovation, Lock In Consumers, and Keep Prices High, DOJ Suit Reveals

March 21, 2024 Press Release

Washington, D.C. — In response to news that the Department of Justice Antitrust Division and 16 State Attorneys General have filed an antitrust suit against Apple for monopolizing the smartphone market—raising prices for consumers and using anticompetitive tactics to box out competition—the American Economic Liberties Project released the following statement.

“For hundreds of millions of Americans, the iPhone is their gateway to the world. The Justice Department’s case details how that has allowed Apple to exercise control over swaths of the economy far beyond the iPhone itself, including financial services, entertainment, retail, and the automotive industry,” said Lee Hepner, Senior Counsel at the American Economic Liberties Project. “Apple’s success exploded against the backdrop of the government’s landmark case against Microsoft over 20 years ago, and it has used many of the same tactics that brought scrutiny to Microsoft to prevent rivals across every functionality from gaining a toe-hold in the market. The complaint tells the important story of what could have been, if Apple hadn’t resorted to throttling innovation, trading consumer privacy for profit, and building an impenetrable fortress around its core product.”

“The DOJ’s lawsuit is a clarion call for fair markets where Big Tech companies like Apple must compete and innovate rather than building walled gardens around their businesses,” added Hepner. “Following previous suits against Google, Amazon and Meta, the Biden administration’s antitrust enforcers continue to make clear that companies can no longer expect to break the law without consequence.”

The DOJ’s complaint alleges that Apple has monopoly power in the market for “performance smartphones,” a category of high-end mobile devices that Apple itself recognizes, and in the broader smartphone market. Apple itself estimates that its market share exceeds 70 percent of the performance smartphone market and 65 percent of the broader smartphone market, well over the legal thresholds for demonstrating market power.

According to the DOJ, Apple has illegally maintained its monopoly power by creating behavioral obstacles and high costs to switch between competing phones – so-called “switching costs” – including by impeding cross-functionality with rival cloud streaming providers, “super apps,” smartwatches, digital wallets, and messaging apps.

As the DOJ states in their complaint, “Over many years, Apple has repeatedly responded to competitive threats … by making it harder or more expensive for its users and developers to leave than by making it more attractive for them to stay.” The complaint references internal communications by Apple executives who openly admit to building features and products that are merely “good enough” for consumers, insulated from the competitive pressure to rigorously innovate and improve their own products.

The Antitrust Division’s complaint highlights five technologies where Apple has restricted interoperability to maintain its monopoly power over the smartphone market. Those include:

  • Denying access to “super apps” – which allow consumers to access programs outside of Apple’s proprietary software – that would improve smartphone connection, competition, and a better user experience.
  • Suppressing cloud streaming video games, which rids users the ability to play certain games and blocks developers from selling those experiences to consumers.
  • Purposefully making third-party messaging and communication apps worse (including via “green bubble” messaging), knowingly and deliberately degrading quality, privacy, and security for its own users and those who don’t use iPhones.
  • Suppressing key functions of third-party smart watches and denying users access to higher quality smartwatches, limiting consumer choice and the ability of developers to innovate.
  • Blocking user access to digital wallets that would provide additional features and options, and “den[ying] digital wallet developers—often banks—the opportunity to provide advanced digital payments services to their own customers.”

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The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.