On 31st August 2021, South Korea became the first jurisdiction (globally) to legally ban the monopolies that companies such as Apple and Google hold over payments on in-app purchases. This is in terms of such companies receiving commissions from developers that charge in-app purchases that are hosted on the said companies’ app store(s). The country’s National Assembly passed amendments to their existing Telecommunications Business Act - which has been nicknamed ‘Anti-Google law’. The move comes after Google announced in September, 2020 that it would be mandating all app developers to use its billing system and will collect up to 30% (percent) commission for in-app purchases. Similarly, Apple has always required apps to use its own purchase system without offering an alternative.
(Article 50 (1) 9) of the Amendment prohibits the act of forcing an app market operator to use a specific payment method, such as mobile content, by unfairly taking advantage of its trading position. The primary reason the passing of this legislation is that these practices will soon damage consumer interests and increase the burden on tech start-ups in the country. A report by the South Korean Ministry of Science and ICT in February 2021 estimated that Google’s in-app commissions could cost Korean firms an additional W156.8 billion (US $136.4 million) in 2021. This legislation has the potential to globally change how platform companies like Google and Apple force developers to use their billing systems for in-app purchases. Across jurisdictions, Google and Apple have increasingly come under scrutiny over the restrictive aspects of their respective systems in other markets, their in-app purchase commission being one of the highlights.
In this post, we shall look at some arguments against the practices of tech giants such as Google and Apple and build a correlation that whether the move of restricting commissions is valid or not. We shall argue that South Korea’s move was justified, and tech giants like Google and Apple charge developers excessively on their platforms.
Before determining excessive pricing at the hands of tech giants such as Apple and Google, it is important to ascertain the specific facts and circumstances surrounding the South Korean information technology market involved, which led to this move. In the given case, there exists significant barriers to entry into the app store market, given the tech giants’ dominant position and the prevalence of network effects. In this case, it is not possible that self-correction could take place, which would bring down the prices. Thus, this leads to an abuse of dominance.
Further, the fees charged by these app stores (example, Google charged 30%, which got dropped down to 15%) is excessive in itself as it has no reasonable relationship to the value of the app store. Further, the price difference between Google and Apple’s transaction fees and that charged by comparable app stores is appreciable i.e., it is significantly and consistently above the benchmark price, indicating an abuse of dominance.
As the comparative prices are appreciable, it is for Google and Apple, who are in a dominant position to show that their prices are fair by reference to objective factors. They have not provided any objective justifications for imposing their transaction fees on apps, excluding their own apps, thereby showing that there is no correlation to the costs incurred in hosting different apps on its platform.
In this case, it can be argued that there exists substantial barriers to market entry in the given case which limit competitive pressure to bring the price down to competitive levels. As Apple and Google’s app store is indispensable for business on the app store, there is a need for intervention.
The discriminatory nature of fees charged adversely affects competition, as it significantly impacts the costs that influence price, output, and innovation. The fee has a negative effect on the productive or dynamic efficiency of music streaming apps, especially the ones with a ‘free-mium’ model, affecting a significant share supply. The bargaining power of the individual applications on the app store has to be assessed while determining anti-competitive disadvantage accruing as a result of discriminatory pricing. In this way, companies/developers would have no bargaining power while negotiating with Apple/Google, as it is a dominant player in the upstream market and is not dependent on other companies/developers to function and compete in the downstream market. Therefore, the commissions charged by Apple and Google are unilateral in nature, and this represents a significant cost for companies/developers, especially after foreclosing its access to consumer data.
It is also being reported that Australia’s Competition and Consumer Commission (ACCC) is contemplating towards placing regulations on the digital payments system adopted by Apple, Google and WeChat. It shall now be interesting to see how these tech giants react to this move, and how shall they tailor their operations in the longer run, and how the ripple effect on global jurisdictions’ reactions affects their business.