Has Apple Finally Become a Monopoly Like Microsoft?

Recently Mac users everywhere have been faced with a very disturbing thought. Most try not to say it out loud for fear it might be true. Others attempt to rationalize their point of view regardless of the facts. What could be causing such trouble? What is giving so many loyal Mac users a sinking feeling in the pit of their stomachs? Why, the simple notion that Apple might have finally become a monopoly just like Microsoft. That is a statement loaded with implications and to better understand all of the ramifications first we need to start with a definition:

mo·nop·o·ly ~

A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, barriers to entry, or governmental regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.

To begin to understand this issue first we must decide, is Microsoft a monopoly? Yes, I believe they are. Though they weren’t convicted by the time the entire trial had run its course, Microsoft had, and continues to maintain, a monopoly in the operating system market. So, according to the definition previously stated, Microsoft is indeed a monopoly. However, this doesn’t automatically mean that they are doing anything illegal (and before you say they are doing something wrong remember, wrong and illegal are two different things)

So, if simply having a monopoly is well within the law, what was the trial all about? Well, as it turns out, they were breaking the law. You see, while it is legal to be a monopoly it is illegal to use that monopoly to ensure your position in the market, force smaller companies out of business or otherwise stifle competition. If you are to retain a monopoly it must either be government sanctioned or maintained in such a way that no laws are broken. That last point is where Microsoft ran into trouble.

Many people have argued (though I don’t share this point of view) that even if Microsoft had a monopoly and even if they were engaging in illegal business practices, all of that should be over looked because in the end Microsoft did more good than harm. This is the rationalization argument that basically boils down to the ends justify the means. However, history has proven that monopolies consistently do two things:  They always stifle innovation and (with the possible exception of heavily regulated monopolies) they always produce an inferior product compared to what a “normal” market would produce.

Before we move on to Apple let us recap what we have decided so far: Microsoft is a monopoly, they engage in illegal business activities (to maintain their position) and they create a product that does not maximize the social welfare. For anyone in search of proof for that last point need only to look at Internet Explorer. When Netscape was a true competitor the IE team had over 100 people on it. After Netscape’s demise the team was reduced to 2 people and the product was left to stagnate for 5 years. It wasn’t until Firefox came along that any real innovation was started up again.

Now let’s look at Apple. Are they a monopoly? In the area of digital music players and digital content delivery, I must conclude that they are. Their 80+% market-share gives them a de facto monopoly in this sector. That Apple has reached this position through innovation (quite unlike Microsoft) doesn’t change the fact that both companies are monopolies.

We, as consumers, must be ever vigilant for illegal activity. So, has Apple done anything illegal to maintain their dominance? The answer is no, not yet at least. So far Apple has played by the rules. They have been accused of infringing on several patents, but those cases don’t directly bear on their status as a monopoly. So far, other than producing superior products, they have yet to do anything that would harm their competition. Now, they haven’t made any mistakes, nor have they done anything to help their competition, but that just means they are clever, not crooks. In this aspect they differ greatly from Microsoft. Throughout its history Microsoft has been many things but seldom were they an innovator.

Now comes the hardest question, does Apple’s dominance in this market maximize the social welfare? This is a difficult question to answer for the simple reason that so far, Apple has gone above and beyond the expectations of the market. They have consistently improved their products and driven down their cost. They dominate for the simple reason that they produce the highest quality experience for the lowest total cost. And yet, history tells us that, in the long run, this cannot last. If Apple becomes secure enough in their position then innovation will slow and consumers will pay the price. And despite their current progress, true competition is the only way to ensure superior products in the years to come.

Where does this leave us? We have concluded that Microsoft and Apple are both monopolies. And while Apple’s reign is benevolent, this trend cannot continue forever. Both Microsoft and Apple need competition to keep them “honest.” This of course raises the question of should Apple be broken up? Should they undergo the same type of trail that Microsoft endured during the 90’s?

To that I must answer no. In the same sense that you can’t damn Microsoft for being a monopoly while arguing that Apple isn’t one, you can’t lobby for separating the iPod/iTMS until you are ready to break up Microsoft too. It is either all or nothing. Either they are both monopolies that harm the market and the government should intervene or you believe the market will correct itself and the government should do nothing. Personally I believe that the government should have taken action against Microsoft when it had the chance. And while I would like to see them broken apart now, I feel that the market is in the process of correcting itself and will soon solve this problem for us. By either forcing Microsoft to compete on the merits of its products, or shifting market-share to other operating systems.

In conclusion, there are really only two main differences between the MS and Apple monopolies. Business practices and quality of product. Microsoft has repeatedly engaged in unlawful business practices over the years as it fights to maintain its dominance. So far, Apple has not broken the law. Likewise the quality of Microsoft’s products has fallen as time goes on while Apple has continued to innovate rigorously. This means that in the OS monopoly consumers are getting a very poor product while in the MP3 player monopoly consumers are getting a very high quality product. This situation could change for the worse, however, if Apple continues to dominate this market. It is very hard to drive for perfection when there isn’t a strong competitor in the market to motivate you. Thus, I can only conclude that, in the long run, the best deal for consumers is to hope that Apple loses market-share. How this could come about barring government interference I do not know. But the time could come soon enough when consumers might wish for a few more options in this ever more profitable market.