April 6, 2012
by Robert H. Bork
Antitrust is on the rampage again. Government agencies in the U.S. and Europe are investigating Google for alleged anti-competitive practices.
No agency or critic has articulated a coherent theory of how Google harms consumers. The principal basis for the investigations appears to be that if one does not understand practices in an industry, the practices must violate the law.
The principal service of Internet search engines like Google, Bing or Yahoo is to provide access to an extraordinary wealth of information, eclipsing by magnitudes encyclopedias, guide books and other references. These searches are free to consumers. Plus, the search engine adopts algorithms based on an individual's earlier searches that make it simpler and faster for the person to find what he wants. Google's search engine is the most effective of the competing generic search engines; thus, the agencies' focus on Google.
The claim appears to be that Google's search algorithms are unfair. The U.S. Federal Trade Commission seems to want to squeeze Google for unfair competition.
But it is hard to see how anything that Google does in search algorithms is unfair. Google bases its business on developing algorithms that facilitate consumer searches. Its competitors do the same thing. Google is just more effective.
Search engines support themselves by selling advertising, much like newspapers, free TV or free radio, except that the search engines are much more efficient. Search algorithms speed to consumers what they most likely want and direct advertisers to consumers most likely to want to buy from them. The search engines charge only when an individual clicks on a seller's ad (compare television, newspapers or radio where advertisers never know directly how many people have looked at or listened to their ads) and charge advertising rates based on the usefulness to consumers of the seller's website and penalizing sellers whose websites aren't consumer oriented.
There is nothing unfair about this practice. Google clearly distinguishes ads from its unpaid search results generated by algorithms.
In addition, there is extraordinary competition in the search engine business. Look at the proliferation of what are called vertical search sites that specialize in particular products or services, such as Amazon, Expedia, Kayak and hundreds of others.
Expansion in the field is easier still. Google's competitors, Microsoft and Yahoo, are or once were giants in other realms and could take over the market instantly if their search engines were more effective. Consumers can switch search engines without cost instantaneously. This is why an argument that a search engine will bias results in favor of its own or sponsored sites makes no economic sense. A search engine that promotes its own inferior products over products people prefer will immediately lose its consumer base.
Regulators may attempt to develop additional antitrust complaints against the search engines but they are unsupportable. There is no coherent case for monopolization because a search engine, like Google, is free to consumers and they can switch to an alternative search engine with a click.
Other theories of monopolization or foreclosure have long been disproved by the Chicago school of economics. Some have argued that Google illegally ties specialized search results (such as shopping and airline flight results) to its generic search results. But there are two problems to the theory:
First, Google's position in generic searches was obtained legitimately through business acumen, not by a merger, monopoly or patent. Google, as is any company, is allowed to define its product.
Second, Google's current position in information search doesn't establish market power over advertising. The share of clicks on Google includes all information searches, which can't be a measure of market control because most clicks have nothing to do with advertising. The competitive market is more accurately defined as all advertising, including newspapers, television, radio and other media, plus vertical search sites. In that case, Google's market share is trivial.
A different theory is that Google's importance should require it to be treated as an "essential facility" and compelled by law to aid its rivals. The U.S. Supreme Court has never accepted this theory and, for good economic reasons, has emphasized how the theory conflicts with the ambition of rewarding investments to bring new services to the market, exactly what search engines have done. There is no economic basis upon which Google or competing search engines should be required to enhance the position of rivals.
In this rapidly changing industry, control through an antitrust decree is simply unrealistic. Some market-oriented legislators have suggested that an antitrust remedy against the search engines is preferable to more direct regulation. But there's not much of a difference. An antitrust order would convert a court into a regulatory agency. And what is the court to regulate? Google estimates that it introduces changes to improve its search algorithms 500 times a year, more than once a day. The first opinion completed by a judge will be hundreds of algorithms behind.
Competition in the Internet search industry is vigorous. Search engines are disciplined by competition among themselves, by advertisers looking for the most effective means of reaching relevant consumers and, most important, by people interested in good search results, not in the engine that generates them. Competitive discipline is far more effective than any antitrust decree.
Robert H. Bork was a Distinguished Fellow of Hudson Institute. He passed away on December 19, 2012.
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