Europe Takes a Bite Out of Apple

When the European Union announced that it was formally investigating Apple for antitrust violations, everyone was taken aback. How could a company that was depicted as a champion of freedom in a recent Super Bowl advertisement be accused of a crime befitting Microsoft? And how could Apple be served by the courts of Europe where, in some places, it is legal to smoke marijuana and pirate software?

Because Apple, much like Starbucks, is a sort of sacred cow among hipsters, it would be heretical to believe that it might be guilty of screwing its customers over just like any other mega-corporation. But nobody should be surprised.

Apple is a publicly-traded, profit-driven company that sells its products on the condition that consumers not use it to produce weapons of mass destruction (see iTunes EULA section 10 on export control). While its concern for weapons proliferation is admirable, the EU has problems with the fact that users of iTunes are being limited in their freedom to choose where to buy their music from. For years, Apple has been able to get away with forcing consumers to use iTunes if they wanted to get their iPods to work.

Apple prices its music differently according to the locations of the distribution Web sites, and users of iTunes in one country may not buy music from an iTunes Web site of another country. However, the EU complains that it is unfair for iTunes users in the United Kingdom and Denmark to pay more for downloading the same album online than other iTunes users in a different European country. Apple has attempted to deflect blame onto the record companies, saying that it has always been in favor of a unified pricing scheme and were persuaded to adopt variable pricing due to pressure from the music industry. But, according to European law, both Apple and its record industry cohorts will probably be subject to fines and possibly face court action regardless of who proposed the pricing plan.

This does not bode well for Apple, whose iTunes sales constitute 80% of all online music sales worldwide. These legal struggles may damage Apple’s ability to single-handedly fight an impossible crusade against illegal music downloading as record companies will want to reevaluate its commitments to the prospect of legalized downloading. But the question still remains: is such a variable pricing scheme bad for consumers?

A uniform pricing plan may seem more equitable for international purchasers, but this ignores regional market fluctuations and would actually serve to restrict music purchases coming from the less wealthy countries of Europe. All things being equal, a record company would actually want to sell its products more cheaply in poorer nations in order to compete against pirated music. Because consumers in such countries have less money, they are more likely to obtain pirated albums unless the record companies are able to lower prices, in response to lower demand, and make legitimate downloading a viable option.

The point is that Apple’s pricing system was designed to maximize the amount of money that Apple, the record companies, and artists make from online music sales. Although the EU may believe that some people are being exploited by price hikes, it is making a false assumption that equal prices everywhere constitute fair pricing. Tampering with Apple’s pricing system will do more harm to the market than good. Switching over to a uniform pricing plan would actually encourage those in poorer European countries to pirate music, where that practice is already a huge problem.

Prices of gas in this country differ according to the regional markets, which reflect the area’s demand for that product. Prices of music should be no different. If consumers really do not like paying unfair prices for music, then they will look for any viable alternatives. That decision will be reflected in decreased sales for Apple and the record industry, and they will respond accordingly. The beauty of the market is that it requires no government intervention to reach prices that may seem facially inequitable, but are actually truly fair to both the consumer and the producer.