Saturday, August 4, 2018

Is Google a Monopolist?

Whenever antitrust action is considered, officials have to define the relevant market. Is cable TV a separate market from mobile or fixed telecommunications? That would have been a simple determination in the past. Is Facebook in a different market than carrier text messaging? Is Google in a different market than Comcast? Is Netflix in the same market as AT&T or Disney?

These days, none of those determinations is absolutely clear. Even once the relevant “market” has been defined, there are other questions: is market share a proxy for market power? To what degree?

And if market power exists, what reasonable market structures can be sustained that allow for both competition and investment? Such questions have dominated telecom regulator thinking for decades, in creating policy for mobile services.

Now questions are raised about whether Google, Facebook and a few others might have become so dominant they are able to leverage their power to stifle the development of new competitors, raising antitrust concerns. Some of those concerns are discussed in a paper by John Yun, Associate Professor of Law and Director of Economic Education, Global Antitrust Institute, Antonin Scalia Law School, George Mason University, and former Acting Deputy Assistant Director, Bureau of Economics, Antitrust Division, United States Federal Trade Commission.

“In many countries including the U.S., within general search, Google has the highest market share, which is not the same thing as market power,” says Yun. “The question is whether or not general search is a relevant product market for both users and advertisers.”

There are obvious questions, including Google’s ability to steer search results to itself, rather than pointing users to third party sites.

Still, the first issue is defining the market. Is the relevant product market “general online search?” And, if so, do users actually “multi-home,” or switch between Google and other search engines even when conducting general search queries? If so, to what degree is that done?

Or does the relevant market also include specialized search engines? It could be that when conducting vertical or specialized searches, Google is not so dominant. On the other hand, “having a high overall market share in general search is more an indicator of superior quality across multiple categories of search rather than being an indicator of a lack of user choice or an inability to switch to competing sites,” Yun notes.

Further, are other advertising platforms effective substitutes for general search engines? When consumers are looking for products to buy, general search has functional substitutes, such as use of Amazon, eBay and other specialized sites, for example, or even exposure to display advertising.  In that sense, display advertising is a substitute for search, for example.

The point, Yun argues, is that Google’s general search market share “is not the same thing as market power.”

“The core antitrust allegation against Google’s search engine is that it engages in search bias—that is, Google prominently and undeservingly displays its own specialized search services to the detriment of not only rival specialized search engines,” Yun says.

There is an inherent tension for any two-sided platform based on advertising or commerce revenues: it must balance the values of users on one side of the transaction and advertisers on the other. Users want the “best quality results.” Advertisers and sellers want the greatest amount of exposure, actions and therefore sales. Google and all other search platforms always have to maintain a balance.

Up to a point, emphasizing “best results” can grow usage, and therefore help the business model (advertiser revenues grow), even if it does not especially highlight “commercial” search results.  

Conversely, too great an emphasis on highlighting “commercial results” can drive users to other platforms, harming both Google’s revenue model and results gained by its advertiser partners.  “Users place value on high quality results while advertisers place value on users and ad clicks, and their return on investment,” Yun notes.

In principle, search rankings on any page, and especially the first returned results page, always matter. The algorithms for displaying results also matter, and there is always some discretion.

A search engine such as Google can undertake design changes that affect search result placements. Emphasizing user-friendly “best results” algorithms will decrease ad click-through rates. But such algorithms also can increase the user base, and is rational.

Search engines also can choose to boost click-through rates by moving commercial results higher on the page. That boosts ad click-through rates (and therefore advertiser happiness) at the expense of user satisfaction with the search engine.

But the point is that changes in the algorithms are not, in and of themselves, evidence of abusive market power.

On the other hand, algorithms might also reduce traffic flowing to third-party sites. And that is a separate issue antitrust regulators have to consider. But even that is a complicated empirical issue.

If Google gets many more users, all other things equal, traffic flowing to third-party sites will increase, even if algorithms steer more traffic to Google sites.

“At the heart of the antitrust claim is the notion that Google not only competes, to a degree, with vertical search sites for both users and advertisers but is a significant source of traffic to these sites as well,” says Yun. “The question is whether Google is effectively foreclosing vertical competitors or raising rival’s costs in a manner that also results in harm to competition.”

If Google is driving traffic away from rivals and to itself because its product has been improved, this is the type of competition that competition laws are intended to promote, Yun says.  Alternatively, if Google implements a change that substantially reduces traffic to a group of vertical sites without a corresponding increase in user quality, then this can raise concerns.

The U.S. Federal Trade Commission has said that “while some of Google’s rivals may have lost sales due to an improvement in Google’s product, these types of adverse effects on particular competitors from vigorous rivalry are a common byproduct of ‘competition on the merits’ and the competitive process that the law encourages.”

“Monopolization and vertical contracting cases typically hinge on whether a firm has excluded competitors from the market in a way that did not benefit consumers or reduce costs,” economist Marc Rysman has said.

The bottom line is that U.S. antitrust have concluded that Google did not act in an anti-competitive way in the past. Circumstances can change, of course.

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