Dealing with a big tech monopsony

America’s regulators watching big tech firms have shifted their focus from monopoly to monopsony.

Monopolies remain a problem. They are when a single company dominates a market from a sales point of view.

Customers have no choice who to buy from. That can lead to monopolies abusing their power and charging high prices.

One buyer to rule them all

A monopsony is where there is a single buyer. Their customers have no choice who they can sell to. Monopsonists can decide what they pay for a product or service.

In the case of technology, monopsonic transactions tend to be at the wholesale level.

Apple is, in effect, the only buyer of apps for iPhones or iPads. Any company wanting to reach customers has to go through Apple’s App Store.

That’s not the whole story. An app developer can try selling direct to customers, it won’t get far.

A similar monopsony exists with Google’s Play Store. While there are alternative stores selling Android apps, Google dominates.

Amazon monopsony

In the same way, Amazon has the ability to decide what it pays to companies wanting to sell products through its online store.

Google and Facebook have control over publishers who want to sell online advertising.

As always with these cases, the powers are not absolute. Sellers have alternatives, but they are rarely practical. A company not selling iOS apps through the App Store will sell a fraction of what its rivals selling through the App Store might achieve.

It’s a new approach for American regulators looking at the tech sector.

There’s a counter argument from the tech giants.

App Store wealth

Take Apple, its App Store has created untold wealth for many software developers who might otherwise have struggled to find customers.

At the same time, it creates value for consumers. People can buy apps from Apple’s store confident that they meet basic standards. Having a central point of sales simplifies buying and finding suitable apps. And there’s a case to be made this process means that apps are more affordable than they might otherwise be.

Developers complain about a lack of flexibility, Apple’s rules can seem rigid and, at times, arbitrary.

The other complaint is that Apple takes a hefty 30 percent cut from every transaction. There is no question this creates a huge revenue stream for Apple. In 2020 the store took $64 billion.

Yet this is in line with the margins software developers offered retail sales back when software was sold in boxes on store shelves. And at that time there was a distributor cut on top of the sales margin.