SAN FRANCISCO (CN) — On the twelfth day of the ongoing antitrust trial between Epic Games and Google, three economists testified Tuesday, presenting arguments in favor of their respective positions.
Steve Tadelis, an economics expert from UC Berkeley testifying on Epic’s behalf, said that he researched Google’s conduct and found that Google “forces developers that wish to use the Google Play Store to use Google Play Billing for all in-app purchases of digital content within their apps.”
Tadelis referred to this as a “coercive tie.” A coercive tie, Tadelis explained, is when a consumer cannot purchase product A without also agreeing to purchase product B as part of the transaction.
Tadelis said the tie harms competition and consumers because it restricts choice and allows Google to continue to charge 30% fees on all in-app purchases, a number that Epic has claimed is prohibitively expensive.
If the tie didn’t exist, Tadelis said, developers could choose to use other billing services, such as PayPal, which charges 9% fees.
“Anyone who is profit maximizing would not choose to pay a 30% fee when they could pay an 8 or 9% fee,” Tadelis said.
The tie being eliminated would also benefit consumers, Tadelis said, as developers would be able to have higher profit margins if they didn’t have to pay Google’s fees. This would allow them to cut the prices of some of their services.
Tadelis’ answer immediately prompted U.S. District Judge James Donato to speak up.
“Let’s say in a hypothetical world, Google eliminated all fees. Why do you expect a user would see any benefit in that, in the price a user pays for an app?” Donato asked Tadelis.
Tadelis said that if he opened a pancake restaurant and the prices of supplies suddenly dropped, he’d make more profit right away, but if he dropped the price down, he could sell more food and make a wider margin.
On cross examination, Google lawyer Kyle Mach said that Tadelis’ bar graph numbers about billing fees were misleading, because PayPal and other billing services are not app distributors like Google is, and because the numbers did not include Samsung and Apple, app distributors that charge the same 30% fee that Google does.
“None of the products shown in your chart besides Google offer app distribution,” Mach said.
Mach said that Google Play isn’t just a payment processor; it offers app distribution to billions of users around the world, including developers.
Tadelis acknowledged to Mach during cross examination that if the coercive tie were eliminated, Google would be paid nothing for distributing apps. Mach said this scenario might lead Google to charge for services it doesn’t currently charge for, contradicting Tadelis’ claim that consumers would benefit.
Stanford economics professor Matthew Gentzkow took the stand later in the afternoon as one of Google’s expert economic witnesses. He said that Android users have many options besides Google Play to get their apps and 68% of Android phones in the U.S. come with a second app store pre-installed.
“Those consumers have a free choice … Nothing is stopping me from picking one [store] or the other," he said.
Gentzkow also said Android users likely pick Google Play because it offers many more apps than other third-party competitors such as the Samsung Galaxy Store, which comes preloaded on all Samsung Galaxy phones.
“Simple fact, the Google Play store has something like 3.3 million apps in it, and these competing stores have smaller numbers,” Gentzkow said.
Gentzkow said that Google’s deals with developers to release their apps on Play are not bribes, and that Google is offering the best deal, which is an example of competition.
Last to testify was Catherine Tucker, an economist and an MIT professor of management and marketing.
Tucker said that she failed to see how Google was a monopoly at all, and said that by offering a product that facilitates interactions between developers and app users, Google by definition competes with Apple and others on the market.
Tucker said she based her findings on actual Apple documents.
“It matters when you see a competitor that’s not part of this case actually say we’re competing against Google Play,” Tucker said.
At the end of proceedings, Donato ordered Epic and Google to have some settlement discussions about the case. Epic and Google have not formally attempted to settle the case up to this point.
“If you win, what are you planning to ask for?” Donato asked Epic’s attorneys.
Epic will ask for freedom for Epic and other developers to introduce third-party stores without restriction, complete freedom to use its own billing system and an anti-circumvention provision against Google.
Donato said the anti-circumvention provision will not happen, but the first two requests seem reasonable for a settlement.
“Spotify pays 4% or zero percent and has its own billing ... you need to be clear with your client who’s sitting behind you that [settlement negotiations are] going to happen,” Donato said, referring to Epic games CEO Tim Sweeney, sitting behind his lawyers in the front row.
In a post on X, formerly Twitter, last month, Sweeney said “We reject Google’s so-called ‘user-choice billing,’ in which Google controls, surveils, and taxes transactions between users and developers.”
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