In this paper, I tried to explain why Google Android and Apple iOS operation systems were evaluated not to be substitutable in the product market analysis of the Turkey’s Competition Authority’s Google Android Decision (18-33/555-273).
Market Definition
Market definition is the cornerstone of competition cases. If the market definition has changed, dominant position, potential competition, substitutability must be reestablished. For this reason, determining the market definition affects all the results, and it is one of the most critical parts.
In competition law practice, the relevant market is much narrower than the market concepts used in other areas. The definition of the market should not include all the industry or sector in which the undertakings operate because the framework of the application of the competition policy strictly depends on the definition of the relevant markets.
In the guidelines on the definition of relevant market published by Turkey's Competition Authority, it is stated that there are various criteria that determine substitution, and it may change from one industry to another industry because of the complex characteristics of the industries. There are no strict rules to determine substitution. Some of the criteria that may affect the Board's decision about demand-side substitutability can be classified as follows;
Findings indicating the products substituted each other in the recent past
Quantitative tests specifically developed for determining the market
Opinions of the customers and competitors
Consumer choices
Costs and barriers related to switching the demand to potential substitute products
Different customer categories and price discrimination (Guidelines on the Definition of Relevant Market, n.d.)
The evaluation of demand substitution includes the determination of other products that consumers consider to be substitutable for the product concerned. In Google’s case, there is no product substituted for Android in the recent past. As was stated in Google’s defense, SSNIP test is not applied, because it cannot be applied thanks to Google’s business model that offers Android to mobile device manufacturer without any charge. Opinions of the customers and competitors are asked, and their answers show that there is no alternative to Google’s Android. Costs and barriers are also so high that any mobile device manufacturer does not want to develop their own operating system. There is also a high indirect network effect in this market.
Mobile Operating Systems
Mobile device market is ever-growing market. All the mobile devices need to an operating system. At the beginning many of mobile device manufacturers developed their own operating system, but it is left excluding Apple which continues to produce its own operating system iOS not available for licencing. Google is dominant in the worldwide market (excluding China) for licensable smart mobile operating systems, with a market share of more than 95% (Antitrust, n.d.).
Costs of developing an operating system for mobile devices is so high that every mobile device manufacturer cannot afford this process. "Indirect network effect" is also playing a key role. Thus, operating systems produced by third-parties become mandatory.
Nine operating systems have been developed for use on mobile devices; some of them are no longer used. These are Android developed by Google, iOS developed by Apple, Windows Mobile developed by Microsoft, Blackberry OS developed by Research in Motion, Bada developed by Samsung, Symbian and Meego OS developed by Nokia, Palm OS and Web OS developed by Palm.
Apple iOS and Blackberry are operating systems exclusively used by vertically integrated developers. There is an important difference between Apple iOS and Android, because Apple iOS is not available for license by third-party device manufacturers, unlike Google's Android. When iOS can be used only on Apple devices, Android can be used on many devices produced by various third-party manufacturers such as Samsung, LG, Sony, etc.
Licensable Mobile Operating Systems
Mobile operating systems market is divided into two as licensable and not licensable, because the operating systems produced by mobile device manufacturers to exclusively use in their mobile devices are not accessible for other mobile device manufacturers. Therefore, operating systems which is not licensable cannot be considered as the substitute for licensable mobile operating systems.
The competition between Apple iOS and the commercial Android OS cannot be ignored when the competition is extended for end-users. End-users have a chance to select Apple iOS or commercial Android OS, whereas manufacturers of smart mobile devices do not have any chance to select an operating system to use in their products. But the licensable mobile operating systems market is not directly related to the end-users.
Determining the sides of the market is as important as determining the type of the market. In the licensable mobile operating system market, manufacturers of the operating systems are on the supply side, and manufacturers of mobile devices are on the demand side.
As was previously stated, Android is an open-source operating system, but open source android (OSA) does not contain Google Play Services and application programming interface. End-users do not prefer OSA devices if there is no application market hosting many applications that work correctly. Google Play Services cannot be installed from the internet, so manufacturers have to use Google's Commercial Android OS to obtain Google's proprietary Android apps and services. Alternative app markets such as Amazon, 1Mobile Market, Appitalism, GedJer cannot be compared with Google's application market because of the number of apps hosted by the markets, and China is out of context. Thus, Google is a pre-eminently leader in the licensable mobile operating system market.
Conclusion
At first glance, Google's Android and Apple's iOS may be seen as substitutable for each other. This confusion comes from not defining the market firstly. When the market is identified, the fact that operating system manufacturers are on the supply side and the mobile device manufacturers are on the demand side appears. Then, we can see that mobile device manufacturers do not have any alternatives to Google's Android, which means iOS and Android are not in the same market. So, they are not substitutable to each other.
References
Antitrust: Commission fines Google €4.34 billion for abuse of dominance regarding Android devices. (n.d.). [Text]. European Commission - European Commission. Retrieved April 22, 2020, from https://ec.europa.eu/commission/presscorner/detail/en/IP_18_4581
Board Decision no. 18-33/555-273, dated 19.09.2018
Guidelines on the Definition of Relevant Market. (n.d.). Retrieved from https://www.rekabet.gov.tr/Dosya/kilavuzlar/ilgili-pazarin-tanimlanmasina-iliskin-kilavuz1.pdf?AspxAutoDetectCookieSupport=1
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