Economic Reality at the Core of Apple

• Author: Tirza J. Angerhofer,Roger D. Blair
• DOI: 10.1177/0003603X21997030
• Published date: 01 June 2021
• Date: 01 June 2021
• Subject Matter: Articles

Article

Economic Reality

at the Core of Apple

Tirza J. Angerhofer* and Roger D. Blair**

Abstract

In Apple, Inc. v. Pepper, the Supreme Court failed to recognize the economic reality at play which

sparked considerable confusion and debate about the continued vitality of Illinois Brick. Apple used

proprietary technology and threats to both iPhone owners and app developers to compel them to

conduct their business in Apple’s App Store. In so doing, Apple created a presumably unlawful

bottleneck. This enabled Apple to impose a 30% ad valorem tax on each transaction. The tax, that is, the

antitrust damage, is borne by both the iPhone owners and the app developers according to the relative

elasticities of the demand and supply. Distributing damages in this way leads to effective antitrust

enforcement that does not reward the wrongdoer with ill-gotten gains nor lead to duplicative damages

and complex apportioning. Our analysis clarifies the economic reality of the Apple case and provides

useful guidance for handling future bottleneck cases.

Keywords

antitrust enforcement, antitrust damages, bottlenecks, monopolization

I. Introduction

The Supreme Court’s split decision in Apple, Inc. v. Pepper

1

has created a good deal of confusion and

concern for the continuing vitality of Illinois Brick

2

in defining antitrust standing.

3

The problem began

with Pepper’s mischaracterization of how apps are sold to iPhone owners. In his class action com-

plaint, Pepper alleged that Apple monopolized the sale of apps to iPhone owners in violation of Section

* Department of Economics, University of Florida, Gainesville, FL, USA

** Department of Economics, University of Florida, and Affiliate Faculty of Law, Levin College of Law, University of Florida,

Gainesville, FL, USA

Corresponding Author:

Roger D. Blair, Department of Economics, University of Florida, Gainesville, FL 32611, USA.

Email: rdblair@ufl.edu

1. 139 S.Ct. 1514 (2019).

2. Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

3. Ryan Sandrock & Miriam Carroll, Illinois Brick after Apple v. Pepper, 34 ANTITRUST 66 (2019) and Case Note, Apple Inc. v.

Pepper, 133 HARV.L.REV. 382 (2019) are two examples. Note that, Apple’s conduct is under investigation in the European

Union (EU). There, they are determining the competitive significance of Apple’s 30%commission. Aoife White, Apple

Faces Twin Attack as EU Probes App Store and Apple Pay, Bloomberg Law (2020).

The Antitrust Bulletin

2021, Vol. 66(2) 308–321

ªThe Author(s) 2021

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DOI: 10.1177/0003603X21997030

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