Apple, the Intermediary of the Digital Age
Discourse on Apple’s monopolistic control of what apps make it into the App Store, the platform which permits Apple users to download and use apps, is nothing new. However, recent price hikes by Apple show the amount of control the company has over the purchase and sale of apps in the technology industry. In the course, Chapter 11 of the textbook covered how traders set the price of goods, and then sellers and buyers react to the price. Applying this basic structure of a trade network to the situation with Apple, we see that Apple is the trade intermediary, which sets the cost of the good, the app, to buyers, iPhone users, and returns a fraction of its profits-from-trade to the seller, app developers (Easley and Kleinberg).
During the recent price hike, Apple raised the price of an app in over 20 of the world’s largest national economies, in addition to the European Union. The price hike shows a general change from €0.99 to €1.19 in the European market, which equates to a current cost of $1.25 (Hillard). While this price increase is not across the board, many app developers and Apple users have responded with frustration and anger. As the model of trade intermediaries from this course outlines, intermediaries have a special connection with the buyer and seller of the goods such that the removal of their relationship would negatively affect the socially optimal output of the network. By applying this model to the situation of Apple and the App Store market, we can see a real-time playout of trade intermediaries. It is worth noting that Apple acts as a sort of monopoly here. While it is true that other phones and ways to download apps exist, the setup of this market allows Apple to raise the ask to the buyer without changing the bid it has for the seller. This setup is described as the monopoly equilibrium in the course, where the monopoly extracts full (1) profits from the buyer but passes none of it on to the seller (0).
What is left to be determined is if the buyers’ and sellers’ reactions to the price increase will cut into Apple’s App Store profits or if users and developers so greatly value apps that they are willing to pay the price Apple asks.
References:
- “Usual Suspects Complain About App Store Price Hikes Outside US,” Hillard, Wesley. https://appleinsider.com/articles/22/10/05/usual-suspects-complain-about-app-store-price-hikes-outside-us
- From the book: Networks, Crowds, and Markets: Reasoning about a Highly Connected World. By David Easley and Jon Kleinberg. Cambridge University Press, 2010. Complete preprint online at http://www.cs.cornell.edu/home/kleinber/networks-book/,https://www.cs.cornell.edu/home/kleinber/networks-book/networks-book-ch11.pdf