An analysis of music industry criticized by federal trade commission

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An analysis of music industry criticized by federal trade commission

By staff of the Federal Trade Commission 1 I. Introduction This evaluation has been prepared by the staff of the Federal Trade Commission in response to several congressional requests. The FTC staff has reviewed the industry analysis and, as discussed below, concludes that the analysis has not identified any significant errors or omissions that would undermine the findings presented in the FTC Staff Report.

The industry estimate is given in nominal terms, which means that the effects of anticipated inflation are included in the estimate. Since the FTC staff analysis was conducted in real terms i. The industry uses estimates of the elasticity of demand that are higher than most published estimates, and it assumes that even in the absence of price increases there will be a substantial 2.

The industry does not say, however, what assumed price increase was used in its estimation, nor does it specify the exact form of the demand function used. As discussed below in section V of this evaluation, Table 3 of the industry report adjusts some figures for inflation but not others, in effect mixing apples and oranges and leading to wrong conclusions.

The FTC Staff Report The FTC Staff Report examined the history of the cigarette industry, the economic literature discussing industry characteristics, and the terms of the proposed tobacco industry settlement. The Report concluded that the broad antitrust exemption and other features included in the proposed settlement could lead to a lessening of competition that would result in substantial increases in cigarette prices and industry profits.

The report provided several illustrations of the potential effect of the settlement on prices, profits, and public sector revenues if coordination is enhanced and the industry raises prices by more than necessary to simply "pass through" to consumers the amount of the annual payments.

Higher prices from increased coordination would result in greater revenues for the public sector as well as increased operating profits for the cigarette manufacturers. The public sector would benefit through greater excess profit penalties under the terms of the settlement and greater revenues from federal corporate income taxes.

The FTC Staff Report also concluded that even without increasing coordination, the proposed settlement would lead to higher prices. The industry analysis also differs from the FTC Staff Report in at least two of the assumptions employed in estimating future cigarette consumption.

The industry analysis employs demand elasticities of The elasticity of demand is a measure of the responsiveness of demand to changes in price.

For example, an elasticity of Second, in its baseline scenario the FTC Staff Report assumed that the secular decline in cigarette consumption would be 0.

As discussed in the FTC Staff Report, differences in assumptions of these magnitudes for both the demand elasticity and the secular rate of decline do not significantly alter the conclusion reached by the FTC Staff Report, i. Section V examines the different approaches to predicting industry profits.

As noted above, the industry analysis does not address the anticipated impact of the antitrust exemption and other features of the settlement on industry coordination, which might cause industry prices and profits to rise.

Therefore, no further consideration of this issue is presented in this evaluation. Consumers will not buy less gasoline or ice cream in simply because the price of those goods has increased at the general rate of inflation; likewise, inflationary increases in the price of cigarettes will not lower the number of cigarettes sold.

Use of nominal prices would lead to an overestimate of the reduction in cigarette consumption. The industry analysis, however, does not explain what price increase was used to calculate the consumption estimates presented in Table 1 of its analysis.

Nevertheless, it appears that the assumptions used tend to exaggerate the likely future decline in consumption, unless the real price of cigarettes to the consumer rises by substantially more than the amount necessary to pass on the cost of the annual payments and the scheduled increases in excise taxes.

In addition, the industry submits that the FTC Staff Report ignores various factors that would diminish industry profits.

An analysis of music industry criticized by federal trade commission

These criticisms are unpersuasive. First, the analysis incorrectly mixes real and nominal prices.

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If the settlement were to impose costs on the industry in addition to the annual payments, as the industry supposes, the FTC staff analysis would treat these costs in the same way as the annual payments: The tobacco industry paper also submits that the FTC Staff Report failed to consider, or gave insufficient weight to, various factors that would diminish future industry profits.

Each factor is addressed below. If the industry is correct, this adjustment does not materially affect the conclusions of the FTC Staff Report.The official website of the Federal Trade Commission, protecting America’s consumers for over years.

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In September , the Federal Trade Commission issued a report on marketing violent entertainment to children. The Commission found that all three segments of the entertainment industry intentionally promoted products to children that warranted parental cautions.

This report provides a look at the advertising practices to see if the industries have continued to promote violent R-rated movies.

Dec 14,  · The speech went on to make a specious comparison between regulating internet providers and regulating websites, like Facebook, saying it . Aug 09,  · Intense advocacy by a think tank scholar is not notable in itself, but Mr.

Eisenach, 58, a former aide at the Federal Trade Commission, has held another job: .

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