When should 'marketplace platforms' be treated as markets controlled by operators?

It poses a new brand of antitrust problem: private parties controlling platforms that work like marketplaces.

This week, Epic Games, maker of mobile app juggernaut "Fortnite," filed suit in federal court against Apple, and then Google, for banning the app from their stores. "Epic Games has defied the App Store Monopoly," the company announced via social media. "In retaliation, Apple is blocking Fortnite from a billion devices."

Epic drew fire from the platforms when the developer asked Fortnite enthusiasts -- and there are 350 million players registered -- to pay Epic directly. This would allow Epic to circumvent the Apple and Google stores and the substantial commissions the platforms collect. Apple and Google claim this violated their policies and was implemented without notification, so they were within their rights to block the app.

"In Epic," says the New York Times, "Apple has met arguably its toughest adversary in years. The game maker has calculated exactly how to hit Apple where it hurts: by making iPhones less attractive and Apple less cool."

This private marketplace arrangement is a new twist in the application of antitrust law.

While most antitrust market definition questions involve determining which private companies compete in a public market, large digital platforms create their own type of private marketplace, where private firms can enter and do business. The question for antitrust is: At what point do these “marketplace platforms” deserve to be treated as markets under the control of the platform operator? What the Epic suit suggests is that even private marketplaces organized within the confines of a private company should be subject to antitrust oversight.

Once antitrust makes the leap to “marketplace market" definitions, other marketplace operators besides Apple and Google, such as Amazon and Facebook, could find themselves under an antitrust duty to grant others reasonable access and reasonably flexible competitive conditions when using the platform. This involves a subtle change from considering Apple a monopolist in the market for Apple apps or payment processing to being considered the owner/operator of a commercial ecosystem (a “marketplace market”) with special duties that ensure a level playing field for the users of the platform.

App Store market power discussed in Congress.

CEOs from Apple, as well as from Google, Amazon, and Facebook, testified before the House Subcommittee on Antitrust, Commercial, and Administrative Law on July 27. Representatives challenged the CEOs on whether they were playing fair.

Apple CEO Tim Cook testified that the App Store is good for everyone, calling it a safe and supportive place for developers to create applications for the iPhone. "For the vast majority of apps on the App Store, developers keep 100% of the money they make. The only apps that are subject to a commission are those where the developer acquires a customer on an Apple device and where the features or services would be experienced and consumed on an Apple device." The commissions are lower than those required by Apple's competitors, he said.

The store has been an innovation machine, Cook testified. Starting with only 500 apps, the store now hosts more than 1.7 million apps, "only 60 of which are Apple software." If Apple is a gatekeeper, Cook said, "what we've done is open the gate wider."

The App Store is an "economic miracle, he continued. "More than 1.9 million American jobs in all 50 states are attributable to the App Store ecosystem," and has facilitated revenues of more than half a trillion dollars globally, $138 billion of which landed in the U.S.

Responses from the subcommittee members make it clear: they are dubious about Apple's unblemished goodness, saying:

Apple rules. Apple dominates the U.S. smartphone market with more than one million iPhone users. According to Counterpoint Research, that's 39% of the market. Note: Globally, Apple is number three behind Huawei and Samsung.

Apple picks the winners. Apple alone decides which apps its users may access. The company makes the rules and changes them along the way, which is why no developer has access to their rules to how they decide what apps are made available.

Apple eliminates competitors at will. Right after Apple released their ScreenTime app, it removed all competing apps for six months.

The Fortnite developer obviously would agree with the Subcommittee members. The outcome of its suits against Apple and Google will be important when evaluating whether the playing field is truly competitive in this and other multi-billion-dollar industries where private platforms rule.

Written by MoginRubin co-founder Jonathan Rubin. Edited by Tom Hagy.