Apple Epic Trial
Epic's expert testimony makes the case for an App Store monopoly
Some of the expert testimony strikes at Apple's core defense.
Photo: Chris Delmas/AFP via Getty Images
Following Apple's submission Tuesday, Epic has now submitted its own written expert testimony ahead of the start of its landmark antitrust case against Apple, which goes to trial on Monday.
In similar fashion, academics and experts hired by Epic lay out the case the Fortnite maker plans to argue in court. The foundation of Epic's approach is a focus on establishing alleged monopolistic conduct on behalf of Apple and laying out the perils of Apple's walled garden ecosystem with respect to how difficult it is to switch to other mobile platforms.
For instance,. Dr. David Evans, the co-executive director of the Jevons Institute for Competition Law and Economics at University College London, lays out the argument that Apple harms competition in the mobile software distribution market through its App Store restrictions, rules that do not exist on other platforms like macOS and Windows:
I have identified at least 10 third-party app stores that distributed Windows and Mac applications in 2008 when the iOS App Store was launched. Direct distribution was also widely used. Based on a survey of major Windows and Mac apps in 2020, I found that they all distributed their software through multiple app stores and through direct downloads. A survey found that 78% of macOS developers distributed their apps through channels other than the Mac App Store.
Evans also points out how a vast majority of Fortnite players choose to play on only one platform, with a small minority of players opting to use a different platform. Epic's argument is that by denying Fortnite players the option to play on iOS, Apple is restricting that availability completely for players who either choose not to or cannot financially play on other platforms like game consoles:
Most Fortnite users play all or nearly all of their game minutes on a single platform. Of accounts with positive all-time game minutes, 82.7% have played Fortnite on only a single platform. The same pattern holds among players who use iOS as their primary platform—90.9% of those players have only used iOS.39 This means there are basically two types of players who used the iOS Fortnite app: those who predominantly used iOS, and those who predominantly used game consoles and personal computers but occasionally used the iOS app. Neither type of player engages in material substitution between playing Fortnite on their iPhones and playing on another device.
Evans also argues the App Store's abnormally high profit margins are a direct result of Apple's monopoly power over iOS app distribution, striking at Apple's core defense that the App Store restrictions serve mostly user privacy and security instead of its bottom line:
Despite Apple's claim that it would operate the App Store on a break-even basis, it soon earned profit margins that are very high relative to reasonable competitive benchmarks. It has been able to earn these high profits because it has had, and continues to have, monopoly power over iOS app distribution. That power is not constrained by other iOS app distributors because none exist—the App Store has effectively a 100% share in the iOS app distribution market. And, as discussed above, it is not constrained by competition in the foremarket because iOS app users have sunk costs, and switching and information costs, and developers have no choice but to distribute iOS apps to reach the large, stable installed base of iPhone users.
Dr. Susan Athey, a professor of Economics of Technology at Stanford's Graduate School of Business, speaks to the switching costs argument. Epic is raising this point to highlight that Apple's walled garden locks users into iOS and may harm competition by not allowing consumers easy access to alternative platforms if they're dissatisfied by high prices or locked out of access to apps like Fortnite:
Most users already own a smartphone and use numerous apps. Consequently, users are often "locked-in" to a specific smartphone OS because of the costs associated with changing OSs, including two app-related costs. First, a user leaving one platform and joining another faces app-related switching costs, including the costs of re-purchasing apps and in-app purchases that cannot be migrated, and of migrating and synchronizing apps and app data when possible. These switching costs create what I call the 'App Barrier to Switching.' Second, users incur what I call 'mixing-and-matching costs' in accessing and collaborating on apps across different platforms, whether among their own personal devices or the devices of members of a group such as a family or organization.
And Dr. Peter E. Rossi — a professor of marketing, economics and statistics at UCLA — conducted a study pointing out that users of iOS are willing to pay higher prices for in-app purchases and subscriptions rather than decreasing spending, while only 1.3% of users said they would switch to a different device, bolstering Epic's switching costs argument:
Professor Rossi surveyed 2,595 iOS users who had spent money on in-app purchases or subscriptions in the past 30 days. (Rossi.) Of these iOS users, 81% stated that they would have made the same in-app purchases if the cost of the digital content had been 5% higher, or 34.7%. (Rossi.) The remaining 19% of iOS users would have decreased their spending by 27%. (Rossi.) Only 1.3% of survey participants reported that they would have switched from iOS to a different device if the fees for in-app digital content increased by 5%. (Rossi.)