The EU tightens the noose around Google

by on December 1, 2010 · 2 comments

[Cross-posted at Truth on the Market]

Here we go again.  The European Commission is after Google more formally than a few months ago (but not yet having issued a Statement of Objections).

For background on the single-firm antitrust issues surrounding Google I modestly recommend my paper with Josh Wright, Google and the Limits of Antitrust: The Case Against the Antitrust Case Against Google (forthcoming soon in the Harvard Journal of Law & Public Policy, by the way).

According to one article on the investigation (from Ars Technica):

The allegations of anticompetitive behavior come as Google has acquired a large array of online services in the last couple of years. Since the company holds around three-quarters of the online search and online advertising markets, it is relatively easy to leverage that dominance to promote its other services over the competition.

(As a not-so-irrelevant aside, I would just point out that I found that article by running a search on Google and clicking on the first item to come up.  Somehow I imagine that a real manipulative monopolist Google would do a better job of white-washing the coverage if its ability to tinker with its search results is so complete.)

More to the point, these sorts of leveraging of dominance claims are premature at best and most likely woefully off-base.  As I noted in commenting on the Google/Ad-Mob merger investigation and similar claims from such antitrust luminaries as Herb Kohl:

If mobile application advertising competes with other forms of advertising offered by Google, then it represents a small fraction of a larger market and this transaction is competitively insignificant.  Moreover, acknowledging that mobile advertising competes with online search advertising does more to expand the size of the relevant market beyond the narrow boundaries it is usually claimed to occupy than it does to increase Google’s share of the combined market (although critics would doubtless argue that the relevant market is still “too concentrated”).  If it is a different market, on the other hand, then critics need to make clear how Google’s “dominance” in the “PC-based search advertising market” actually affects the prospects for competition in this one.  Merely using the words “leverage” and “dominance” to describe the transaction is hardly sufficient.  To the extent that this is just a breathless way of saying Google wants to build its business in a growing market that offers economies of scale and/or scope with its existing business, it’s identifying a feature and not a bug.  If instead it’s meant to refer to some sort of anticompetitive tying or “cross-subsidy” (see below), the claim is speculative and unsupported.

The EU press release promotes a version of the “leveraged dominance” story by suggesting that

The Commission will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons (so-called vertical search services) and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

The biggest problem I see with these claims is that, well, they make no sense.

First, if someone is searching for a specific vertical search engine on Google by typing its name into Google, it will invariably come up as the first result.  If one is searching for price comparison sites more generally by searching in Google for “price comparison sites” lots of other sites top the list before Google’s own price comparison site shows up.  If one is searching for a specific product and hoping to find price comparisons on Google, why on Earth would that person be hoping to find not Google’s own efforts at price comparison, built right into its search engine, but instead a link to another site and another several steps before finding the information?  As a practical matter, Google doesn’t actually do this particularly well (not as well as Bing, in any case, where the link to its own shopping site almost always comes up first; on Google I often get several manufacturer or other retailer sites before Google’s comparison shopping link appears further down the page).

But even if it did, it’s hard to see how this could be a problem.  The primary reason for this?  Google makes no revenue (that I know of) from users clicking through to purchase anything from its shopping page.  The page has paid search results only at the bottom (rather than the top as on a normal search page), the information is all algorithmically generated, and retailers do not pay to have their information on the page.  If this is generating something of value for Google it is doing so only in the most salutary fashion: By offering additional resources for users to improve their “search experience” and thus induce them to use Google’s search engine.  Of course, this should help Google’s bottom line.  Of course this makes it a better search engine than its competitors.  These are good things, and the fact that Google offers effective, well-targeted and informative search results, presented in multiple forms, demonstrates its (and the industry’s as a whole) degree of innovation and effort–the sort of effort that is typically born out of vibrant competition, not the complacency of a fat, happy monopolist.  The claim that Google’s success harms its competitors should fall on deaf ears.

The same goes for claims that Google favors its own maps, by the way–to the detriment of MapQuest (paging Professor Schumpeter . . . ).  Look for the nearest McDonalds in Google and a Google Map is bound to top the list (but not be the exclusive result, of course).  But why should it be any other way?  In effect, what Google does is give you the Web’s content in as accessible and appropriate a form as it can.  By offering not only a link to McDonalds’ web site, as well as various other links, but also a map showing the locations of the nearest restaurants, Google is offering up results in different forms, hoping that one is what the user is looking for.  Why on Earth should Google be required to use someone else’s graphical presentation of the nearby McDonalds restaurants rather than its own simply because the presentation happens to be graphical rather than in a typed list?

So what’s going on?

First off, in essence, the EU is taking up the argument put forth by (the EU’s very own) Foundem in its complaint against Google.  Foundem is a UK price comparison site.  It claims that it was targeted by Google and demoted in Google’s organic search results.  Its argument is laid out here.  But Google responds that it is simply applying its algorithm to the site (along with all other sites) and finds some things lacking.  In fact, all Foundem does, in essence, is pull information from other sites and present it on its own.  While in general this is little different than what Google does (although the quality of the information and its presentation may be different), from the point of view of a user who has already searched once in Google, the prospect of Google serving up sites requiring the user to make duplicate searches in other search engines to find the information she is looking for would seem to be pretty poor.  In part for this reason Google disfavors sites in its searches that simply duplicate other sites’ content.  While Foundem may offer something more than the typical spam site that Google intends to block, this fact is not immediately obvious (and, for what it’s worth, apparently Google was eventually convinced of the difference and has lifted the “penalty” formerly imposed on Foundem).

To make an antitrust claim out of this, one has to adopt a sort of “essential facilities” stance with respect to Google, in essence claiming that (Google’s users’ interests be damned) if Google is the only way users can get to its competitors’ sites, it must provide that access.  The essential facilities doctrine, dealt a near-death blow by the Supreme Court in Trinko, has long been on the ropes.  As Areeda and Hovenkamp said of it, “the essential facility doctrine is both harmful and unnecessary and should be abandoned.”  That is true in this case, as in the others before it.  On the one hand Google does not preclude, nor does it have the power to preclude, users from accessing Foundem’s site:  all they need do is type “” into a web browser.  To the extent that Google can and does (or did) limit Foundem’s access to its search results page, it is not controlling access to an “essential facility” in any sense other than Wal-Mart controls access to its own stores.  “Google search results generated by its proprietary alogrithm and found on its own web pages” is not a market to which access should be forcibly granted by the courts or legislature.  While Europe takes a less critical view of the doctrine (see Microsoft), it shouldn’t.

And as Josh has pointed out, Microsoft’s fingerprints are all over these cases (see also here and here where Microsoft Deputy General Counsel, Dave Heiner, essentially lays out the unfortunate state of play in this arena–a state of play that has ensnared Microsoft in the past).  The relevance of which is just this: When the EU went after Microsoft itself, many of us decried the case in part as a witch hunt by competitors looking for advantage through regulatory means when they were unable to get it through innovation, marketing and the like.  The case against Google in the EU looks to be following the same unfortunate pattern, and even the same unfortunate case-law.  Even if it is not true that the EU actually behaves in this fashion (indeed, appearances can be deceiving, sometimes a cigar is just a cigar, etc., etc.), it is costly to everyone that it is so widely perceived to do so.  This case doesn’t help matters.  It has always been true that the Holy Grail (to its competitors) of a Section 2 (or Dominance) case against Google was a substantive stretch but a near-inevitability nonetheless.  But as Josh and I conclude our paper:

Indeed, it is our view that in light of the antitrust claims arising out of innovative contractual and pricing conduct, and the apparent lack of any concrete evidence of anticompetitive effects or harm to competition, an enforcement action against Google on these grounds creates substantial risk for a “false positive” which would chill innovation and competition currently providing immense benefits to consumers.

The cost of poorly-considered, seemingly politicized, competitor-induced antitrust cases is substantial.

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