Sean Hollister

He says internet companies know “very well” that any amount of friction in this payment process leads to serious drop-off and that he’s seen it firsthand: “Both at the times when I was at eBay and at Amazon, there were many projects that dealt directly with friction.”

Epic asks if app developers could use links in their apps to speed things up. Sure, says Tadelis, but Google doesn’t allow that. Epic puts Google’s anti-steering provision on-screen:

“In-app user interfaced flows, including account creation or sign-up flows, that lead users from an app to a payment method other than Google Play’s billing system as part of those flows.”

Anti-steering is the one place Epic won a tentative victory against Apple, BTW.

“Google was well aware that severing the tie would put price pressure on payment solutions they could provide,” he says. We saw a brief snippet of a document showing a multi-step process where other payment providers would rise up to fill a mandatory Play Billing vacuum.

He says another chunk of the document showed that Google saw benefits in “laddering up,” or using its power to become dominant in a subsequent area — like how Netflix’s DVD business became a launchpad for its streaming business, which became a launchpad for its own TV and movie productions, he says.

Tadelis says that “savings from the reduced fees would naturally be passed onto the users.” As anyone who’s lived through inflation-as-excuse-for-price-gauging will tell you, that seems a little optimistic?

Judge Donato picked up on this instantly, pausing the testimony to ask a question of his own: “Let’s say in a hypothetical world, Google eliminated all fees. Why do you expect a user would see any benefit in that, in the price a user pays for an app?”

Tadelis suggested that if he opened a pancake shop and suddenly the cost of milk and eggs drop, he’d make more profit right away — but if he drops the price a bit, he can sell even more goods and make a wider margin.

“Macroeconomic analysis shows that some of that will optimally be passed on to consumers,” he says. The judge seems satisfied, at least from where I’m sitting.

“If the developer that’s charged 30 percent is selling a million dollars of product and the developer charged 15 percent is selling $1 of product,” then the fee is closer to 30 percent on average, he says.

(In 2021, after Epic filed its lawsuit, Google reduced its cut to 15 percent for a developer’s first $1M in annual revenue. Some companies pay far less than 15 percent, though — even as low as zero.)

On the first point, foreclosure: “When Google doesn’t have to compete with other payment solution providers, they lack the incentive to offer the innovations that are needed,” says Tadelis.

On the second, high prices: “If the tie were severed, could they charge 15–30 percent for a payment solution? And the answer to that is no,” he says.

“Anyone who is profit maximizing would not choose to pay a 30 percent fee when they could pay a 9 or 10 or 6 percent fee,” he adds.

We’re looking at a slide showing Google’s average in-app purchase fee (29.4 percent as calculated by Tadelis) versus the 5.5 to 10 percent charged by PayPal, Stripe, Square, and Paddle.

He explains coercive ties simply: if you want product A that I’m selling, you have to buy product B as well. But for it to be impactful, it also requires there to be no viable alternatives, he says. If Nike makes you buy a pair of socks with its sneakers, and you don’t like those socks, you could simply buy sneakers from Adidas instead.

We’re looking at an amusingly simple visual aid: a thick clip art of a physical rope with a prominent knot between Google Play and Google Play Billing.

So, Epic has two economists, including Doug Bernheim, whom we heard from yesterday; expect Google to have two as well.

We’re covering the trial live here:

He’s Epic’s witness again now, though, and Epic’s lead attorney prompted Bernheim to say that adding those X’s was wrong since Samsung’s Project Hug deal constrains it in other ways — and we’ve seen the Samsung Galaxy Store accounts for so little share of Android downloads (around 1 percent?) that preloading it hasn’t made a huge difference for competition.

I’m SO curious whether the jury thinks Samsung’s Galaxy Store is a good counterexample to some of Epic’s arguments. It’s been a facet of Google’s defense from the beginning.

Bernheim said yes — but suggested that in a properly competitive market, Google’s profits wouldn’t simply grow unchecked. “In a competitive market, that would be competed away.”