What is a monopoly and why is the Justice Department alleging Apple is one? We explain.
Does Apple have a monopoly on the smartphone market? The Justice Department sued Apple Inc. Thursday, alleging it restricted developers of apps, products and services used on the iPhone, allowing Apple to extract more money from consumers, software developers publishers and merchants.
“We allege that Apple has consolidated its monopoly power not by making its own products better − but by making other products worse,” said Attorney General Merrick Garland.
What is a monopoly?
A monopoly happens when a business dominates an industry or sector and can therefore control price changes and create entry barriers for competitors.
It’s often used as shorthand in the eyes of the court – rather than looking out for a total monopoly, the Federal Trade Commission defines a monopolist as “a firm with significant and durable market power.”
Consumer impact? Ways in which the DOJ lawsuit against Apple could play out
In Apple's case, the lawsuit alleges that the company restricted developers of apps, services and products that could have lowered costs for consumers, according to the legal filing, among other allegations.
“As a result, iPhone users perceive rival smartphones as being lower quality because the experience of messaging friends and family who do not own iPhones is worse − even though Apple is the one responsible for breaking cross-platform messaging,” Garland said.
In a statement, Apple said the lawsuit threatens the company's ability to provide innovative technology and could set a "dangerous precedent."
Why are monopolies bad for the economy?
Without competition, monopolies can keep prices consistent and reliable for customers, Investopedia says. But they can also abuse this advantage by creating low-quality products and faux scarcities. They also don’t encourage companies to compete with innovation.
But not all monopolies are bad for the economy. The United States Postal Service is an example of a government-sanctioned monopoly. The government also regulates public utilities, like gas and electricity, to guarantee a regular supply.
There are a few different types of monopolistic market structures we see in the U.S., according to Investopedia:
Pure monopoly: Single seller in a market with high barriers to entry, often has a product with no substitutes
Monopolistic competition: Multiple sellers in an industry operate independently to produce a similar but differentiated product, like hair salons or retail stores
Natural monopoly: Relies on unique raw materials, technology, research or patent, like a pharmaceutical company
Public monopoly: Provide essential goods and services but are regulated by government municipalities, like utility companies
DOJ lawsuit: Latest updates on Apple monopoly case
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Contributing: Bart Jansen
This article originally appeared on USA TODAY: What is a monopoly? Examples of how it works in the economy.
