How Apple Came To Control the Component Market

An anonymous reader writes "Phillip Elmer-Dewitt draws on several sources to argue that 'Apple has become not a monopoly (a single seller), but a monopsony — the one buyer that can control an entire market.' According to Dewitt, Apple uses its $70 billion cash hoard to 'pay for the construction cost (or a significant fraction of it) of [tech factories] in exchange for exclusive rights to the output production of the factory for a set period of time...' This gives Apple 'access to new component technology months or years before its rivals and allows it to release groundbreaking products that are actually impossible to duplicate.'"

Interesting...

[Millennium]

So with this, the argument is that monopsonies are as bad for free markets as monopolies are. Who'da thunk it?

I wonder...

[fafaforza]

how much other manufacturers are really being stopped from using said components. My inclination from past experience is that most non-Apple companies would choose to use lesser quality components to keep prices down. LCD displays for example, have for the most part been a lot worse on laptops, music players, etc.

Who did the R&D work?

[RogueWarrior65]

Lots of people are crying anti-trust but the question I have is who did the R&D for the components in question? Did Apple do the development and contract with the fabricator or did the component company have something cool and Apple said "Okay, we'll back you in exchange for the first production runs."? If Apple did the development work, I see no grounds for anti-trust. Even if it's the latter, so what? It's not like other companies can't do the same thing with other fabricators.

A Perfect Example of Writers Wearing Blindfolds

[brices21]

This writer needs to join the rest of the world for a little while. Samsung just sold 3 million Galaxy S2 devices in 55 days (without a US launch http://www.engadget.com/2011/07/03/samsungs-galaxy-s-ii-becomes-companys-quickest-selling-phone/ [slashdot.org]">Link ). Get your head out of Steve's ass and have a look around. This type of forward buying might actually limit Apple's abilities and agility.

Re:This shows patents are not needed.

[delinear]

Much as I think the current patent system is screwed, if we didn't have anything, all that would happen is the little guy would get walked over. Not many inventors creating products in their shed could afford to bankroll factories to produce the goods ahead of the competitors, and the second they showed it to a big company with a view to investment without some kind of protection, they'd have their idea stolen. In my view each additional patent you secure should increase the cost to secure more exponentially. That would allow the little guy to secure a handful of patents while effectively preventing global corporations from patenting hundreds or thousands of ideas (they'd have to cherry pick what was worth protecting and what could go to the open market).

Those unaware of history...

[DerekLyons]

Those unaware of history are doomed to make stupid statements...
 

Remember back when companies actually owned their own factories, made their own parts, and assembled them?

This outsourcing of all production is a new thing which was brought on by globalization and the availability of cheap labor in places like China and South Korea.

I remember when some did. Contrary to popular belief, it's never been universal.
 
Nor is outsourcing as new as you think. Across the 20th century and right down to today production in the US was 'outsourced' to places like the West and the South because land and labor there was cheaper than in the East (especially the Northeast). (That's one of the reasons there are so many abandoned textile and lumber mills from the late 19th and early 20th centuries scattered across the Northeast.) Another key that most people miss is cheap bulk transportation - railroads through the 20th century to now, and container ships from the late 20th century. (Arguably, without containers, the whole 'globalization' things falls apart due to the high labor costs of handling individual boxes multiple times as they switch transportation modes.)
 

Not that I like Apple doing this, but they have really figured out how to get the best of both worlds. They get the cheap prices of globalization, and the competitive edge of controlling their own production.

Sears & Roebuck was doing the same thing with production 'outsourced' to the (American) Midwest and the South as early as the 1920's.
 
There really is nothing new under the sun.