Antitrust agencies in the United States and the European Union began investigating Google's search practices in 2010. Google's critics have consisted mainly of its competitors, particularly Microsoft, Yelp, TripAdvisor, and other search engines. They have alleged that Google is making it more difficult for them to compete by including specialized search results in general search pages and limiting access to search inputs, including "scale," Google content, and the Android platform. Those claims contradict real-world experiences in search. They demonstrate competitors' efforts to compete not by investing in efficiency, quality, or innovation, but by using antitrust law to punish the successful competitor. The Chicago School of law and economics teaches-and the Supreme Court has long affirmed-that antitrust law exists to protect consumers, not competitors. Penalizing Google's practices as anticompetitive would violate that principle, reduce dynamic competition in search, and harm the consumers that the antitrust laws are intended to protect.
Thanks to the contribution of the Chicago School of law and economics, the courts have emphasized since the late 1970s that antitrust law protects consumers by protecting the competitive process. That process necessarily entails certain competitors losing customers or exiting the market while other competitors gain customers. In particular, the Chicago School has helped to clarify the Supreme Court's ruling that a monopolization claim under section 2 of the Sherman Act requires, in addition to the possession of monopoly power in the relevant market, "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." This distinction between monopolization through unlawful means and growth from meritorious rivalry is crucial to examining the search practices for which antitrust agencies in the United States and Europe have been investigating Google since 2010.
Google's competitors claim that its ranking methodologies and search algorithms are unfair. Critics have focused on whether Google's ranking of its specialized search results harms competitors and whether Google excludes competitors by limiting access to search inputs. Unlike general search results, which provide links to other websites, specialized search results provide direct responses to the user's query based on the type of media pertinent to the query, such as images, videos, maps, local places, products, and real-time news.3 But it is difficult to see how anything that Google does in search and ranking algorithms is unfair. Google bases its business on developing search and ranking algorithms that facilitate consumer searches. Google would employ a particular ranking methodology only if it helps to attract and retain search engine users. Google's competitors do the same thing, including offering specialized search. Courts have long recognized that a practice likely has "redeeming competitive virtues" when all competitors use it. Moreover, that Google has gained market share, even at the expense of its competitors, from its questioned practices does not justify antitrust intervention. Judge Frank Easterbrook has explained that "every successful competitive practice has victims. The more successful a new method of making and distributing a product, the more victims, the deeper the victims' injury."5 Such is the nature of competition. To question every practice that produces victims would be counterproductive.
Punishing Google for being the most effective search competitor would harm consumers and thus contradict the recognized purpose of antitrust law. ("Consumers" of search include both search engine users and advertisers, but for ease of exposition, we use "consumer" to refer only to search engine users.) Search engines epitomize dynamic competition-the virtuous cycle in which innovation drives competition, which further drives consumer-welfare-enhancing innovation.6 Dynamic competition in search enhances the user experience, increasing the value of search services to both consumers and advertisers. Antitrust intervention that would prohibit or circumscribe Google's practices would punish and therefore deter the same welfare-enhancing innovations that have made Google an effective competitor. Such use of antitrust law would weaken dynamic competition, as only successful firms would need to worry about being penalized for being winners. Losers do not face monopolization suits for having lacked a superior product, business acumen, or the benefits of a historic accident.
In this article, we bring the tools of the Chicago School to bear on various criticisms of Google raised by its competitors. Although the European Commission and other nations' competition authorities have also begun investigating Google's search practices, this article encompasses only U.S. law. The principles explained in this article nonetheless apply to the investigations in other countries. In Part II, we refute the claim that Google is the "gateway" to the Internet. We first explain the two-sided market for Internet search: Internet users have demand for free search, and advertisers have demand for viewers. The two-sided nature of Internet search is crucial to understanding how Google's incentives align with promoting competition and consumer welfare. Google's largest source of revenue is from advertising, and demand from advertisers depends on consumers' demand for Google. That consumers can switch to substitute search engines instantaneously and at zero cost constrains Google's ability and incentive to act anticompetitively. Consumers can also navigate directly to any competing search engine due to the Internet's open architecture.
In Part III, we explain why Google's ranking of its specialized search results is not anticompetitive. Google's specialized search is a product improvement in search. Effectively supplying that innovation requires allowing consumers to identify those specialized search results easily. This innovation adds value to Google search from the perspective of both consumers and advertisers. Google's critics have attempted to cast this innovation as a form of foreclosure-that Google uses market power in general search to foreclose vertical search providers (such as Amazon, Yelp, and Nextag) from the market by ranking its own specialized search results higher.7 As a matter of economic analysis, however, Google has no incentive to foreclose competitors from search because doing so is unlikely to offer additional profit at the potential cost of driving away consumers. Nonetheless, FairSearch.org, a coalition of Google's competitors alleging that Google is acting anticompetitively, 8 and other critics urge the Federal Trade Commission (FTC) to require Google to rank specialized results the same way it ranks links to other web pages-which would defeat the purpose of specialized search. To declare this product improvement anticompetitive would tell all search providers that innovations will be suspect and possibly punished.
Google's critics have also invoked the essential facilities doctrine. They argue that Google's ranking of its specialized results above competitors' results deprives competitors of an essential facility: being displayed high on a Google search results page. However, in no way is being placed high on a Google search results page an essential facility under American antitrust law. Moreover, a mandate that Google provide its competitors access to the top Google search positions through antitrust injunction or consent decree would be virtually impossible to enforce.
In Part IV, we explain why allegations that Google deprives search competitors of scale are incorrect. First, scale is not a necessary input to compete in search. Google was not the incumbent search engine. It surpassed Yahoo, just as Yahoo surpassed others before it. Google's critics therefore exaggerate the importance of scale to being able to compete in search. Second, the argument that Google deprives competitors of search inputs, such as crawl access to YouTube videos and advertisers' campaign data, is not credible. Third, complaints that Google has made it more difficult for competitors to supply their search services to consumers are misguided. Google's terms and conditions for its AdWords application programming interface (API) limit porting and comingling of advertising data by third parties only. Moreover, there is no evidence that Google's terms and conditions have reduced competition, even if one assumes (contrary to fact, for the sake of argument) that those terms and conditions raise the costs of competitors. Consequently, those terms and conditions cannot be anticompetitive.
The investigation of Google's search practices under antitrust law presumes that Google is the "gateway" to the Internet-that is, Google is the sole path for consumers to access websites. This portrayal of Google contradicts realworld experiences. Consumers can switch to other search engines at zero cost. Consumers can also navigate directly to websites. The two-sided nature of search also constrains the ability of Google to act anticompetitively- as the Internet's gatekeeper. Instead, search users' and advertisers' joint demand for search creates a powerful incentive for Google to compete by continuously enhancing the quality of its search services.
J. Gregory Sidak is an Expert Economist in the fields of Antitrust, Telecommunications Regulation, Commercial and Investment Arbitration, and Intellectual Property Law. Prof. Sidak is the Ronald Coase Professor of Law & Economics at Tilburg University and the Chief Economic Expert at Criterion Economics in Washington, DC. The focus of his research has been regulation of network industries, antitrust policy, the Internet and electronic commerce, intellectual property, and constitutional law issues concerning economic regulation.
©Copyright - All Rights Reserved
DO NOT REPRODUCE WITHOUT WRITTEN PERMISSION BY AUTHOR.