Wednesday, November 12, 2014

Do Free Mobile Apps Harm Consumers?

Greg Sidak, Criterion asks Do Free Mobile Apps Harm Consumers?

ABSTRACT: Google distributes proprietary applications for its open-source Android mobile operating system (OS) free of charge. Some of those applications (apps) are offered together as a suite of apps known as Google Mobile Services (GMS). Manufacturers of mobile devices can agree, pursuant to Google’s Mobile Application Distribution Agreement (MADA), to install the suite of apps on their devices at a price of zero. Some theorize that Google’s policy of offering some applications together as a suite of apps harms competitors or menaces consumer welfare. That theory is wrong. As a matter of economics, Google’s practice of distributing free mobile apps in the GMS suite benefits consumers (as well as manufacturers, mobile carriers, app developers, and advertisers) by stimulating demand, by reducing the risk of fragmentation of the Android OS, and by preventing Google’s competitors from free riding on its investment to make the Android OS and mobile apps a viable open-source competitor to closed and proprietary—“walled garden”—platforms for mobile devices. As a matter of antitrust law, Google’s distribution of apps as part of a larger whole—GMS—is lawful under the Supreme Court’s four-part test for such arrangements. Google does not force consumers to pay for apps they do not want, and the MADA’s requirements enhance competition overall. The same conclusion holds with even greater certainty under the rule-of-reason analysis for software integration that the D.C. Circuit adopted in its historic Microsoft decision.

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