Market Dynamics and Strategic Interactions in the Digital Music Industry: An Examination of the Antitrust Case between Spotify and Apple

Abstract

The rise of digital platforms as a business model has substantially increased the growth and influence of firms. The potential market implications that follow have captured the attention of regulators globally. Our thesis explores the antitrust implications of digital platforms, mainly focusing on the digital music streaming market. It introduces the ongoing antitrust case between Apple and Spotify as the focal point of our study. In the market we are examining, Apple is a platform provider and a supplier of music streaming apps. Spotify sells its product through its website and on Apple’s App Store, where they must pay a 30% commission fee for App Store sales. The commission fee has potential implications for pricing strategies, market competition, and consumer welfare. Our study uses a multinomial logit model to simulate pricing strategies for both firms at different commission fee rates. We also include modified versions of the model where we close Spotify’s website as a sales channel and remove the competing product Apple Music. We found that third-party sellers, like Spotify, are forced to increase their prices when the commission fee rate increases, which benefits the fee recipient at the expense of their competitors in terms of profits and market shares. The effect of the commission fee remains unchanged when including and comparing with our modified models.