Economic Reality at the Core of Apple

In Apple, Inc. v. Pepper, the Supreme Court failed to recognize the economic reality at play which sparked considerable confusion and debate about the continued vitality of Illinois Brick. Apple used proprietary technology and threats to both iPhone owners and app developers to compel them to conduct their business in Apple’s App Store. In so doing, Apple created a presumably unlawful bottleneck. This enabled Apple to impose a 30% ad valorem tax on each transaction. The tax, that is, the antitrust damage, is borne by both the iPhone owners and the app developers according to the relative elasticities of the demand and supply. Distributing damages in this way leads to effective antitrust enforcement that does not reward the wrongdoer with ill-gotten gains nor lead to duplicative damages and complex apportioning. Our analysis clarifies the economic reality of the Apple case and provides useful guidance for handling future bottleneck cases.