Apple has the highest market capitalization in the United States. In the last an

Question

Apple has the highest market capitalization in the United States. In the last analysis on the stock market, Apple was worth 816.54 billion dollars. Apple is trying to compete with Samsung to make the best phones in the marketplace. They are having some difficulty justifying their high prices and are beginning to lose market share on phones. Apple decides to make an agreement with Amazon where if you have an iPhone, you will get a 10 percent discount of any items that are bought on Amazon.com. Tim Cook, the CEO of Apple raves at the sales of iPhones going through the roof! He has increased the market capitalization of the company to 972 billion dollars. It is about to become the first trillion dollar company in the history of the United States. Such a deal like this has never been seen and the Justice Department has to decide on how Apple's actions can be construed under the Sherman Act or the Robinson-Pactman Act.

1. Is this an example of a violation of any Anti-Trust laws in the United States? If so which one and why?

2. Apple and Amazon are making huge profits under this arrangement. Is this a horizontal or a vertical agreement between the companies? How would your know?

3. Let us say that because of the arrangement, Apple and Amazon grow to be the largest companies in the United States. Samsung tries to join Alibaba to rival the Apple-Amazon partnership, however the agreement does not seem to be gaining any traction. The justice department cannot figure out why this agreement works so well in the US and not in other countries. Apparently, Apple has been promoting a culture where the purchase of items off of Amazon using the iPhone and its unique software and people are gravitating towards it. Is this success by Apple and Amazon Anti-Trust? Did the companies do anything wrong? What did they do wrong and why?

Explanation / Answer

1. Is this an example of a violation of any Anti-Trust laws in the United States? If so which one and why?

Ans 1. Yes apple is violating antitrust law of Robinson-Pactman Act or Anti Price Discrimination act; “it states a seller cannot charge competing buyers different prices for the same commodity or product. It also prohibits producers of producers from participating in anti-competitive practices”. Here Apple is offering 10% discount to consumers buying on Amazon.

2. Apple and Amazon are making huge profits under this arrangement. Is this a horizontal or a vertical agreement between the companies? How would your know?

Ans 2.The Apple and Amazon made huge profits by a vertical agreement which means the aligning of Apple’s brand promise with Amazon’s specialization in giving customers a great experience. The strengths of Apple (unique hardware) are used and the strength of Amazon (Internet experience) is used to maximize profits.

3. Let us say that because of the arrangement, Apple and Amazon grow to be the largest companies in the United States. Samsung tries to join Alibaba to rival the Apple-Amazon partnership; however the agreement does not seem to be gaining any traction. The justice department cannot figure out why this agreement works so well in the US and not in other countries. Apparently, Apple has been promoting a culture where the purchase of items off of Amazon using the iPhone and its unique software and people are gravitating towards it. Is this success by Apple and Amazon Anti-Trust? Did the companies do anything wrong? What did they do wrong and why?

Ans 3. The success of Apple and Amazon is a vertical integration where strengths of Amazon offerings of internet sales and the strengths of Apple iPhone its hardware technology is offered to customers at a discount of 10% than the existing market price. They violate the antitrust law of Robinson-Patman act of discriminatory pricing for the same product to different buyers.

From the Legal perspective, Apple has created discriminatory pricing which violates the law of the same price for same product. They have also taken up this as a means to kill the competition i.e. Samsung who gives various smartphone features at better prices. The discriminatory pricing is not allowed as per the Anti-trust law in the United States.

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