Google Agonistes

News reports on Tax Day suggest that the European Commission wants to nail Google Inc.’s scalp to the wall as punishment for committing alleged antitrust (competition) law violations. At issue is the way in which the company assigns priorities to the links consumers see when they “google” generic search terms like “booksellers”, “cameras”, and “watches”. The links that rank highest are to the sellers of goods and services who have paid Google for advertising space on its search engine.

More recent stories in the Wall Street Journal suggest that the core of the EU’s lawsuit is based on complaints from Nextag, Bizrate, LeGuide and other companies offering comparison-shopping services saying that they have been “crushed” by Google’s online search engine. Additional charges may be looming on the horizon contending that Google’s Android cell phone operating system likewise unfairly favors Google’s own apps over those available from other sellers.

Unlike U.S. antitrust laws, which supposedly are intended to attack “monopolies” (sellers of products having, in consumers’ eyes, no close substitutes) and other commercial enterprises enjoying and exercising so-called market power (defined as the ability to raise prices above competitive levels without losing so many sales that the higher price becomes unprofitable), European law worries more about ambiguous “market dominance.”

There is no question that Google has captured a large, perhaps dominant share of the search engine “market”, if such a relevant antitrust market can be defined and defended in the matter now before the European Commission. The important question that antitrust law enforcers are supposed to ask, though, is, do the actions of a market-dominating firm actually cause measurable, substantial harm to consumers by forcing them to pay higher prices than they would otherwise pay?

The U.S. antitrust authorities have answered that question already. At the end of an 18-month-long investigation of many of the same practices now being challenged in Europe, the five-member Federal Trade Commission (FTC) voted unanimously not to issue a complaint against Google. News reports about the FTC’s decision focused on one leaked memorandum written by lawyers working in the Commission’s Bureau of Competition – its legal staff – recommending prosecution of Google for violating Section 5 of the FTC Act (1914), which authorizes the agency to ferret out and sanction defendant firms determined to be engaging in unspecified “unfair methods of competition.” But after considering all of the evidence gathered during its internal investigation of Google, including the recommendations of the professional economists working in the FTC’s Bureau of Economics, the commissioners decided that the legal and evidentiary case for suing Google was too weak to warrant moving the matter forward. The path to dropping those charges likely was smoothed by the relatively minor changes to its search engine Google adopted voluntarily two years ago.

Truth in advertising: I served as a staff economist and, later, as a special assistant to the Director of the FTC’s Bureau of Economics for about five years during the late 1970s and early 1980s. That experience taught me at least two relevant lessons: first, that the lawyers and economists there disagreed frequently; second, and what is more important, that the FTC’s investigations of and decisions to prosecute alleged anticompetitive behavior often were instigated by the accused firm’s competitors seeking advantages in the “halls of justice” that they were unable to capture in a free and openly competitive marketplace. Moreover, once an investigation had been launched, the commissioners were pressured by special interests, including politicians representing congressional districts and states with salient stakes in the outcomes of the antitrust law enforcement process.

For instance, it is well known that Netscape was instrumental in convincing the Antitrust Division of the U.S. Department of Justice to sue Microsoft Corp. for developing and then “monopolizing” the web browser “market” by integrating its Internet Explorer application into the Windows 95 PC operating system, thereby making it more difficult (costly) for Netscape to attract users to Navigator, that competitor’s own web browser. Microsoft ultimately was found guilty by a federal court of acquiring and exercising an unlawful monopoly of web-browsing applications and penalized accordingly. In another instance, U.S. Senators from Ohio, home to Office Max’s headquarters, blocked a prospective merger between Office Depot and Office Max. Opposition from public officials in Bartlesville, OK, where Marathon Oil Corp. was based at the time, succeeded in blocking Mobil’s takeover, fearing that Marathon’s headquarters’ operations would be downsized and moved to New York City. I could continue to bore readers with similar examples.

The bottom line here is that the initial U.S. investigation of Google, which ended without action by the Federal Trade Commission, as well as Google’s encounter with the European Commission, where it faces a fine of up to $6 billion, almost surely are not motivated by concerns about protecting consumers from abuses of monopoly power or of market dominance, but rather are guided by the self-serving interests of Google’s competitors. (Brussels may pay more attention to such special pleading because competition laws there actually give enforcement agencies more elbowroom to protect competitors, authority that plainly reduces consumers’ welfare.)

U.S. and European antitrust laws supply companies with an alternative means of “competing” with their more efficient rivals. Rather than building a “better” mousetrap that promises to serve consumers well and produce more sales, election-minded politicians who represent your interests will carry your water to Washington or Brussels if you file an antitrust lawsuit. Taxpayers, not you, will then shoulder most of the expense of litigation; even if you lose the case, competitors’ time and money will be deflected from their core business activities toward fending off the charges. You win either way.

The EU’s pending antitrust case against Google forces us to recognize that it is well past time to grasp public choice scholarship, which calls for more widespread appreciation of the uncomfortable truth that antitrust bureaucrats and politicians are no more selfless or public-spirited than any other ordinary human being. As such, they can be relied upon to respond to the demands of special pleaders.

[Revised 18 April 2015]

William F. Shughart II is Research Fellow and Senior Fellow at the Independent Institute, the J. Fish Smith Professor in Public Choice at Utah State University, past President of the Southern Economic Association, and editor of the Independent book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.
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