Build It and They Will Prosecute

by Don Boudreaux on June 12, 2010

in Antitrust, Competition

The Federal Trade Commission will investigate Apple for that company’s alleged threat to monopolize the market for software used to run mobile devices such as the iPhone.

Chief among the many reasons for questioning the wisdom of this investigation is that the FTC’s case against Apple is illogical on its face.  That case rests on the theory of “network effects” – effects which, as the Wall Street Journal reports, antitrust enforcers believe “grant outsize advantages to first movers and make it particularly difficult for competitors to break in.”  But as the WSJ also reports (quoting Gary Shapiro, president of the Consumer Electronics Association), the first significant mover in the market for smart phones – and still the dominant supplier there – is Blackberry.

So if the FTC’s theory of network effects is correct, Apple has little hope of gaining monopoly power because it is unlikely to displace Blackberry as the dominant firm in that market.  If, on the other hand, Apple does pose a genuine competitive threat to Blackberry’s dominance, then this very fact casts serious doubts on the validity of the theory used by the FTC to justify its investigation of Apple.

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