Apple vs Epic Fight Over App Store Policies and Game Theory
https://www.gamespot.com/articles/new-hearing-in-epic-vs-apple-legal-clash-may-return-fortnite-to-app-store/1100-6482670/
Recently, Epic is fighting with Apple over Apple’s app store policy that requires developers to use Apple’s payment system in order for Apple to take the 30% cut. In August, Epic intentionally replaced Apple’s payment system with its own payment system to avoid the 30% cut, and then Apple removed Epic’s game Fortnite from App Store as an response. Epic accused Apple of being monopoly and started court fight to force Fortnite back onto App Store, while Apple claimed that the Epic self-inflicted the harm onto itself. We can analyze the conflict between two companies in terms of game theory. To start simple, we can assume the setting when the market has no government interference. In this case, we will get the following payoff matrix:
From Apple’s perspective, changing rules to allow every developer to use their own payment system will cause Apple to completely lose the App Store service revenue, so the payoff is always 0. If Apple doesn’t change rules, then if Epic cooperates to continue using Apple’s payment system, Apple will gain the full revenue as before. If Epic continues to refuse to cooperate, Apple will get a slight hit in revenue will be able to retain the rest. Thus, not changing rules is always the dominant strategy for Apple. Knowing Apple’s dominant strategy, Epic should rationally choose following Apple’s rule and use its payment system, to get a slightly less 0.7 instead of 0.
Therefore, if the market has no government interference, Epic’s action is completely irrational. However, we know that we are not living in a world when there are no government interference in the market at all. For example, the court can potentially rule against Apple or legislators can create new laws that push the case in a favorable direction for Epic. For simplicity, we can consider the case when Apple’s action can be affected by court rulings. In this case, we will get the following payoff matrix:
The payoff values are exactly the same, but the only difference for this scenario is that the court replaces Apple to be the one that makes decisions on App Stores. The court doesn’t care about Apple’s payoff, because it will only consider relevant laws. If the court can rule against Apple, Epic can easily gain an additional 0.3 payoff. However, this is still a risky move, since no one can be certain about the court ruling at this moment. Epic, based on recent antitrust hearings on Apple, might think that it has a greater chance to win, so it started the controversy for the additional 0.3 gain in payoff.