[Cross-posted at Truthonthemarket.com]
There is an antitrust debate brewing concerning Google and “search bias,” a term used to describe search engine results that preference the content of the search provider. For example, Google might list Google Maps prominently if one searches “maps” or Microsoft’s Bing might prominently place Microsoft affiliated content or products.
Apparently both antitrust investigations and Congressional hearings are in the works; regulators and commentators appear poised to attempt to impose “search neutrality” through antitrust or other regulatory means to limit or prohibit the ability of search engines (or perhaps just Google) to favor their own content. At least one proposal goes so far as to advocate a new government agency to regulate search. Of course, when I read proposals like this, I wonder where Google’s share of the “search market” will be by the time the new agency is built.
As with the net neutrality debate, I understand some of the push for search neutrality involves an intense push to discard traditional economically-grounded antitrust framework. The logic for this push is simple. The economic literature on vertical restraints and vertical integration provides no support for ex ante regulation arising out of the concern that a vertically integrating firm will harm competition through favoring its own content and discriminating against rivals. Economic theory suggests that such arrangements may be anticompetitive in some instances, but also provides a plethora of pro-competitive explanations. Lafontaine & Slade explain the state of the evidence in their recent survey paper in the Journal of Economic Literature:
We are therefore somewhat surprised at what the weight of the evidence is telling us. It says that, under most circumstances, profit-maximizing vertical-integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked. Furthermore, we have found clear evidence that restrictions on vertical integration that are imposed, often by local authorities, on owners of retail networks are usually detrimental to consumers. Given the weight of the evidence, it behooves government agencies to reconsider the validity of such restrictions.
Of course, this does not bless all instances of vertical contracts or integration as pro-competitive. The antitrust approach appropriately eschews ex ante regulation in favor of a fact-specific rule of reason analysis that requires plaintiffs to demonstrate competitive harm in a particular instance. Again, given the strength of the empirical evidence, it is no surprise that advocates of search neutrality, as net neutrality before it, either do not rely on consumer welfare arguments or are willing to sacrifice consumer welfare for other objectives.
I wish to focus on the antitrust arguments for a moment. In an interview with the San Francisco Gate, Harvard’s Ben Edelman sketches out an antitrust claim against Google based upon search bias; and to his credit, Edelman provides some evidence in support of his claim.
I’m not convinced. Edelman’s interpretation of evidence of search bias is detached from antitrust economics. The evidence is all about identifying whether or not there is bias. That, however, is not the relevant antitrust inquiry; instead, the question is whether such vertical arrangements, including preferential treatment of one’s own downstream products, are generally procompetitive or anticompetitive. Examples from other contexts illustrate this point.
Grocery product manufacturers contract for “bias” with supermarkets through slotting contracts and other shelf space payments. The bulk of economic theory and evidence on these contracts suggest that they are generally efficient and a normal part of the competitive process. Vertically integrated firms may “bias” their own content in ways that increase output. Whether bias occurs within the firm (as is the case with Google favoring its own products) or by contract (the shelf space example) should be of no concern for Edelman and those making search bias antitrust arguments. Economists have known since Coase — and have been reminded by Klein, Alchian, Williamson and others — that firms may achieve by contract anything they could do within the boundaries of the firm. The point is that, in the economics literature, it is well known that content self-promoting incentives in a vertical relationship can be either efficient or anticompetitive depending on the circumstances of the situation. The empirical literature suggests that such relationships are mostly pro-competitive and that restrictions upon the abilities of firms to enter them generally reduce consumer welfare.
Edelman is an economist, and so I find it a bit odd that he has framed the “bias” debate without reference to any of this literature. Instead, his approach appears to be that bias generates harm to rivals and that this harm is a serious antitrust problem. (Or in other places, that the problem is that Google exhibits bias but its employees may have claimed otherwise at various points; this is also antitrust-irrelevant.) For example, Edelman writes:
Search bias is a mechanism whereby Google can leverage its dominance in search, in order to achieve dominance in other sectors. So for example, if Google wants to be dominant in restaurant reviews, Google can adjust search results, so whenever you search for restaurants, you get a Google reviews page, instead of a Chowhound or Yelp page. That’s good for Google, but it might not be in users’ best interests, particularly if the other services have better information, since they’ve specialized in exactly this area and have been doing it for years.
“Leveraging” one’s dominance in search, of course, takes a bit more than bias. But I was quite curious about Edelman’s evidence and so I went and looked at Edelman and Lockwood. Here is how they characterize their research question: “Whether search engines’ algorithmic results favor their own services, and if so, which search engines do so most, to what extent, and in what substantive areas.” Here is how the authors describe what they did to test the hypothesis that Google engages in more search bias than other search engines:
To formalize our analysis, we formed a list of 32 search terms for services commonly provided by search engines, such as “email”, “calendar”, and “maps”. We searched for each term using the top 5 search engines: Google, Yahoo, Bing, Ask, and AOL. We collected this data in August 2010.
We preserved and analyzed the first page of results from each search. Most results came from sources independent of search engines, such as blogs, private web sites, and Wikipedia. However, a significant fraction – 19% – came from pages that were obviously affiliated with one of the five search engines. (For example, we classified results from youtube.com and gmail.com as Google, while Microsoft results included msn.com, hotmail.com, live.com, and Bing.)
Here is the underlying data for all 32 terms; so far, so good. A small pilot study examining whether and to what extent search engines favor their own content is an interesting project — though, again, I’m not sure it says anything about the antitrust issues. No surprise: they find some evidence that search engines exhibit some bias in favor of affiliated sites. You can see all of the evidence at Edelman’s site (again, to his credit). Interpretations of these results vary dramatically. Edelman sees a serious problem. Danny Sullivan begs to differ (“Google only favors itself 19 percent of the time”), and also makes the important point that the study took place before Yahoo searches were powered by Bing.
In their study, Edelman and Lockwood appear at least somewhat aware that bias and vertical integration can be efficient although they do not frame it in those terms. They concede, for example, that “in principle, a search engine might feature its own services because its users prefer these links.” To distinguish between these two possibilities, they conceive of the following test:
To test the user preference and bias hypotheses, we use data from two different sources on click-through-rate (CTR) for searches at Google, Yahoo, and Bing. Using CTR data from comScore and another service that (with users’ permission) tracks users’ searches and clicks (a service which prefers not to be listed by name), we analyze the frequency with which users click on search results for selected terms. The data span a four-week period, centered around the time of our automated searches. In click-through data, the most striking pattern is that the first few search results receive the vast majority of users’ clicks. Across all search engines and search terms, the first result received, on average, 72% of users’ clicks, while the second and third results received 13% and 8% of clicks, respectively.
So far, no surprises. The first listing generates greater incremental click-through than the second or third listing. Similarly, the eye-level shelf space generates more sales than less prominent shelf space. The authors have a difficult time distinguishing user preference from bias:
This concentration of users’ clicks makes it difficult to disprove the user preference hypothesis. For example, as shown in Table 1, Google and Yahoo each list their own maps service as the first result for the query “maps”. Our CTR data indicates that Google Maps receives 86% of user clicks when the search is performed on Google, and Yahoo Maps receives 72% of clicks when the search is performed on Yahoo. One might think that this concentration is evidence of users’ preference for the service affiliated with their search engine. On the other hand, since clicks are usually highly concentrated on the first result, it is possible that users have no such preference, and that they are simply clicking on the first result because it appears first. Moreover, since the advantage conferred by a result’s rank likely differs across different search queries, we do not believe it is appropriate to try to control for ranking in a regression.
The interesting question from a consumer welfare perspective is not what happens to the users without a strong preference for Google Maps or Yahoo Maps. Users without a strong preference are likely to click-through on whatever service is offered on their search engine of choice. There is no significant welfare loss from a consumer who is indifferent between Google Maps and Yahoo Maps from choosing one over the other.
The more interesting question is whether users with a strong preference for a non-Google product are foreclosed from access to consumers by search bias. When Google ranks its Maps above others, but a user with a strong preference for Yahoo Maps finds it listed second, is the user able to find his product of choice? Probably if it is listed second. Probably not if it is delisted or something more severe. Edelman reports some data on this issues:
Nevertheless, there is one CTR pattern that would be highly suggestive of bias. Suppose we see a case in which a search engine ranks its affiliated result highly, yet that result receives fewer clicks than lower results. This would suggest that users strongly prefer the lower result — enough to overcome the effect of the affiliated result’s higher ranking.
Of course this is consistent with bias; however, to repeat the critical point, this bias does not inexorably lead to — or even suggest — an antitrust problem. Let’s recall the shelf space analogy. Consider a supermarket where Pepsi is able to gain access to the premium eye-level shelf space but consumers have a strong preference for Coke. Whether or not the promotional efforts of Pepsi will have an impact on competition depend on whether Coke is able to get access to consumers. In that case, it may involve reaching down to the second or third shelf. There might be some incremental search costs involved. And even if one could show that Coke sales declined dramatically in response to Pepsi’s successful execution of its contractual shelf-space bias strategy, that merely shows harm to rivals rather than harm to competition. If Coke-loving consumers can access their desired product, Coke isn’t harmed, and there is certainly no competitive risk.
So what do we make of evidence that in the face of search engine bias, click-through data suggest consumers will still pick lower listings? One inference is that consumers with strong preferences for content other than the biased result nonetheless access their preferred content. It is difficult to see a competitive problem arising in such an environment. Edelman anticipates this point somewhat when observes during his interview:
The thing about the effect I’ve just described is you don’t see it very often. Usually the No. 1 link gets twice as many clicks as the second result. So the bias takes some of the clicks that should have gone to the right result. It seems most users are influenced by the positioning.
This fails to justify Edelman’s position. First off, in a limited sample of terms, its unclear what it means for these reversals not to happen “very often.” More importantly, so what that the top link gets twice as many clicks as the second link? The cases where the second link gets the dominant share of clicks-through might well be those where users have a strong preference for the second listed site. Even if they are not, the antitrust question is whether search bias is efficient or poses a competitive threat. Most users might be influenced by the positioning because they lack a strong preference or even any preference at all. That search engines compete for the attention of those consumers, including through search bias, should not be surprising. But it does not make out a coherent claim of consumer harm.
The ‘compared to what’ question looms large here. One cannot begin to conceive of answering the search bias problem — if it is a problem at all — from a consumer welfare perspective until they pin down the appropriate counterfactual. Edelman appears to assume — when he observes that “bias takes some of the clicks that should have gone to the right result” — that the benchmark “right result” is that which would prevail if listings were correlated perfectly with aggregate consumer preference. My point here is simple: that comparison is not the one that is relevant to antitrust. An antitrust inquiry would distinguish harm to competitors from harm to competition; it would focus its inquiry on whether bias impaired the competitive process by foreclosing rivals from access to consumers and not merely whether various listings would be improved but for Google’s bias. The answer to that question is clearly yes. The relevant question, however, is whether that bias is efficient. Evidence that other search engines with much smaller market shares, and certainly without any market power, exhibit similar bias would suggest to most economists that the practice certainly has some efficiency justifications. Edelman ignores that possibility and by doing so, ignores decades of economic theory and empirical evidence. This is a serious error, as the overwhelming lesson of that literature is that restrictions on vertical contracting and integration are a serious threat to consumer welfare.
I do not know what answer the appropriate empirical analysis would reveal. As Geoff and I argue in this paper, however, I suspect a monopolization case against Google on these grounds would face substantial obstacles. A deeper understanding of the competitive effects of search engine bias is a worthy project. Edelman should also be applauded for providing some data that is interesting fodder for discussion. But my sense of the economic arguments and existing data are that they do not provide the support for an antitrust attack against search bias against Google specifically, nor the basis for a consumer-welfare grounded search neutrality regime.
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