Economics and Business (Bachelors and Masters)

Maarten Pieter Schinkel and Jan Tuinstra cited in US Supreme Court case

4 October 2018

Two articles by UvA EB professors Maarten Pieter Schinkel, Jan Tuinstra, and co-authors have been cited in an amicus letter in the Apple v. Pepper case currently before the US Supreme Court.

Renowned American antitrust scholars side with the plaintiffs, buyers of iPhone apps, calling upon the Court not to extend the so-called Illinois Brick-rule by qualifying a buyer of a product (apps) as an indirect purchaser (of App Store) if the price of the product is set by a third party (app developers). Doing so would facilitate antitrust violations, and be unjustified as a result of new developments in economic theory.

Illinois Brick

Central in the case is Illinois Brick Co v. Illinois (1977), in which the Supreme Court restricted the standing to sue for antitrust damages to direct purchasers. An important justification for the ruling at the time was that the determination of pass-on of antitrust overcharges would be prohibitively complex.  In the first article referenced in the brief (RAND, 2008), Schinkel and Tuinstra et al. show that the Illinois Brick-rule can shield upstream cartels from antitrust damages claims, which makes collusion more stable. In the second article (working paper), they provide a model with which pass-on can be determined in production chains with an arbitrary number of layers and players, and any kind of competition in each layer.

App Store

In the civil case Apple Inc. v. Pepper, the allegation is that Apple monopolized the market for iPhone apps with its App Store. Apple’s dominant position allowed the company to charge app developers a commission fee of 30% for sales distributed through the App Store. The developers passed the fees (in part) on in higher app prices, which a class of app buyers claims constitutes an antitrust damage. Apple argues that the class has no standing, because app buyers would only be indirect purchasers of Apple.

App developers

The Supreme Court currently considers the question whether apps that were purchased via the App Store were bought directly from Apple, or instead directly from the app developers. In the latter case, the app buyers would be indirect purchasers of Apple, so that under the Illinois Brick-rule they would not have standing to sue Apple for overcharges resulting from the dominant position of the App Store. Apple’s position that consumers bought directly from the app developers rests on the argument that the price of the apps in App Store are determined by the developers. Apple considers itself just a provider of services to independent software developers of Apps, for a fee that may have been passed on to consumers.

The Amici

The eminent ruling of the Supreme Court will have fundamental consequences for the treatment of intermediary platforms in competition cases, and thereby for future business strategies in two-side markets. Amici curiae refer to the first article by Schinkel et al. where they make the argument that a further restriction of the right to claim antitrust damages will aggravate the problem OF antitrust violations escaping prosecution. The second paper is given as an example of progress in economic analysis that invalidates the original justification for the Illinois Brick ruling that pass-on calculations would be too complex to be practical.

Published by  Economics and Business