28 Feb 2011

Monopoly power

The blogosphere has been chatting about Apple's "greedy" plan to take 30% of the price for apps downloaded from its website to iPads. That's not greed, that's using market power to increase profits.

Customers who buy the iPad have a hard time "sideloading" apps and data onto their $500 toy, so they go to the iTunes store to buy the stuff at the same price as they would pay by surfing the web (Apple requires this pricing policy). Why bother with the fuss, when you can get the app more easily, at the same price? Sure, Apple's strategy means that the price goes up for everyone, but that wrinkle is lost on customers paying $2.99 or $9.99 for something they want.

It's no accident that Apple Inc is worth over $300 billion.

But Apples "market monopoly" has come with keen innovation and clever marketing. Check out how a government monopoly works (from Bruges):

So the Lords of Gruut were given a monopoly on sale of gruut. When hops came along, their monopoly was transferred to the right to tax beer. In Belgium. Reminds me of the how the USPS tried to establish certified email (only $1.70!). Glad that didn't happen!

Bottom Line: Monopolies are better at extracting money from customers than competitive firms. Sometimes monopolies earn that market power (Apple), sometimes they get it from political friends (Lords of Gruut).

1 comment:

W.E. Heasley said...

Dr. Zetland:

Excellent points!

You see, fair is what you are doing and what the other guy is not doing. Self interest is your noble interest, greed is the other guys un-noble self interest.

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