The European Union (E.U.) fined Apple €1.84 billion (about $2 billion), saying it set unfair rules for developers of music-streaming apps. The E.U. probe into Apple stemmed from a complaint filed by Spotify, which competes with Apple Music.—Wall Street Journal, March 4, 2024
Data on the music streaming market
How big is the music-streaming market and what are the market shares of Apple Music and Spotify?
Music streaming creates 84 percent of the music industry’s revenue, which in 2024 is $17 billion.
Spotify has a 30.5 percent share ($5.2 billion) and Apple Music has a 13.7 percent market share ($2.3 billion). These two streamers together with Tencent Music at 13.4 percent and Amazon at 13.3 percent account for 71 percent of the market ($12 billion).
Figure 1 shows these market shares and those of the other, smaller, streamers.
What is the HHI in the music streaming market?
The Herfindahl-Hirschman Index (HHI), the square of the market share of each firm summed over all the firms. It can be calculated for the music-streaming market from the data in Figure 1 and is close to 1,600.
In what type of market do music streamers operate?
A market in which the HHI lies between 1,500 and 2,500 is regarded as being moderately concentrated and an example of monopolistic competition. Despite the large market shares of Spotify and Apple Music, the market is extremely competitive.
What E.U. antitrust rules is Apple said to have violated?
Apple is said to have made it difficult for developers of music-streaming apps to inform users about alternative ways to subscribe to music-streaming services, which may have led to users paying higher prices for music-streaming subscription.
What does Apple say?
Apple says there is no credible evidence of consumer harm.
What does Spotify say?
Spotify says Apple makes it hard for the Spotify app to inform its users about the prices of subscriptions and promotions.
What are the monthly subscription prices of Spotify and Apple Music?
The table shows the prices per month for individual and family plans in four countries.
The prices in these four markets are identical, except the price for a family plan in Germany, where Spotify’s price is 1 euro higher than Apple Music’s.
Perhaps surprisingly, the units of the prices, 10.99 and 16.99, are the same in all four countries in their own currencies. To compare these prices, we must convert them to a common currency. Table 2 shows the prices converted to U.S. dollars using the exchange rates on March 4, 2024, the day the news item published.
In U.S. dollars, the most expensive music-streaming services are in the U.K. and the least expensive are in Canada.
Why are Spotify and Apple Music prices the same?
The most likely answer is competition. Spotify and Apple Music set their prices at a competitive level, which prevents the other smaller players from taking their large market shares. Also, the game that Spotify and Apple play against each other is a prisoners’ dilemma with a dominant-strategy Nash equilibrium. This payoff matrix illustrates.
The payoff matrix shows the total revenue of each firm. Each firm has two strategies: set a monopoly profit-maximizing price (M) or set a competitive price (C).
If Spotify sets M, Apple sets C and captures the entire market. If Spotify sets C, Apple also sets C and makes $2.3 billion. So, Apple sets C regardless of what price Spotify sets.
If Apple sets M, Spotify sets C and captures the entire market. If Apple sets C, Spotify also sets C and makes $5.2 billion. So, Spotify sets C regardless of what price Apple sets.
The outcome of the game is that both firms set the competitive price.
Who is correct: Apple or the European Union?
There is no agreed answer on whether Apple or the European Union is correct. But the music-streaming market is extremely competitive, and the data reviewed here points to Apple being correct.
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