2010/02/14

Market abuse; or, extending control from one market to another

As a geek with an interest in broadcasting, I see an awful lot of people justifying market abuse by Apple, Microsoft and Sky, amongst others. I thought I would jot down my personal views on what is and is not market abuse, and why I don't consider it acceptable.

So, what is market abuse? Market abuse is where you use your power in one market to unreasonably influence another market. In this circumstance, unreasonable means that a competitor who's only playing in the market you're trying to influence cannot possibly match your influence, without first having power in the market you're using.

It's easier to explain by examples of abuse, and not abuse:

Abuse
Tying your web browser in with your OS, and forbidding resellers of your OS from removing your browser or adding another browser.
Not abuse
Giving your web browser away for free, and permitting unlimited distribution of copies without a fee.
Abuse
Tying reception of your TV channels with your TV receiver box.
Not abuse
Tying reception of your TV channels with your encryption card.
Abuse
Tying your mobile phone to a specific provider, and requiring people who want your phone to take out service from your chosen provider.
Not abuse
Permitting mobile providers to subsidise your phone and apply a subsidy lock.

There's a thread running through all of these; when you are engaging in market abuse, there are two separate products being sold. One is worth buying (or getting for free) on its merits, the other is not, so you tie the two together, forcing me to take the poor quality product if I want the good product. But note that there's a slight twist; it's not market abuse if I can get equivalent products elsewhere in the market without the tie.

So, offering me your MP3 player tied to your music player software isn't abuse; I can buy other MP3 players, not tied to your music player easily enough. If I can't get an equivalent to your phone elsewhere in the market (e.g. because your application store means that network effects compel me to have your phone or lose out), it's abuse.

Why do I consider market abuse bad? Simply put, it's because I'm compelled to accept a worse overall experience. Either I accept the poor quality product with the good product, or I lose out on both; it gets really bad when network effects mean that I must accept one of the two products and lose out.

How do companies avoid market abuse? By not tying two products together unreasonably; sell them both separately, and let your immediate customers make decisions for themselves. If you're moving into a new market, don't get tempted to do anything that couldn't be done by a competitor in the new market with enough money. In particular, don't tie your existing product together with your new product, unless a competitor could tie your existing product together with their existing product.