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Internet Search and the Nature of Competition

Thursday, November 1, 2012

Antitrust law protects consumers by protecting the competitive process — not individual competitors.

Since 2010, U.S. and EU antitrust agencies have been investigating Google’s search practices. We’ve written a new white paper applying a Chicago School analysis to the potential legal theories against Google, finding that many of them face significant legal hurdles.

Notably, Google’s critics, consisting mainly of its competitors, have alleged that Google is making it more difficult for them to compete in Internet search by including “specialized” search results in general search pages. As the figure below shows, specialized search results provide direct responses to a 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. Google’s competitors are also complaining that Google is limiting access to search inputs, including “scale,” Google content, and the Android platform, a free, open-source mobile software platform.

Google may have gained significant market share in general search over time, even from its questioned practices and at the expense of its competitors. However, that growth in itself cannot justify antitrust intervention. As Judge Frank Easterbrook has explained, “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.”1 Such is the nature of competition. To question every practice that produces victims would be counterproductive.

Since the late 1970s, the courts have emphasized that antitrust law protects consumers by protecting the competitive process — not individual competitors. 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.2 The distinction between monopolization through unlawful means and growth from meritorious rivalry is crucial to examining Google’s investigated search practices.

Given that U.S. antitrust law penalizes only harm to consumers and the competitive process, it is difficult to see how Google’s questioned search practices can be considered anticompetitive.

bork redone

Critics’ claims that Google’s search practices are anticompetitive rest on the premise that the market for Internet search lacks competition due to Google’s size. Critics characterize Google as the “gateway” or even “gatekeeper” to the Internet. However, consumers can switch to substitute search engines instantaneously and at zero cost. It is common for users to switch search engines within a single search session if they do not immediately find what they are seeking. Consumers can also navigate directly to any website due to the Internet’s open architecture.

Critics also allege that Google’s amount of accumulated traffic, which the critics call “scale,” makes it impossible for rivals to compete in Internet search. But scale is not a necessary input to compete in search. Thomas Barnett, former assistant attorney general for antitrust and outside counsel to Expedia, has said that Google is “a dominant company [in search] because they got there first.”3 This is incorrect. Yahoo entered Internet search in 1994, and Google entered four years later. Yet, even though Yahoo “got there” before Google, Google surpassed Yahoo by 2002. The reality of the Internet search market does not indicate that a search engine must be as big as Google to compete with it.

Consider next the actual search practices of Google that are the target of antitrust scrutiny. The common complaint against Google’s questioned search practices is that they exclude competitors from the search market — for example, by excluding competitors from top search rankings and from the Android platform. When examining these practices, it is essential to apply the framework that American courts use to ensure that antitrust law protects competition, not competitors.

With respect to Google’s ranking of its specialized search results on its general search pages, it is no surprise that so-called vertical search competitors (firms such as Amazon, Yelp, and Nextag) all want to be ranked at the top of a Google search page. So, if Google moves links to a competitor’s website below its own specialized search results, this may harm that competitor (although the harm may be minimal). But, does that ranking harm consumers?

Google has no incentive to exclude or lower the ranking of competing vertical search providers merely to direct more traffic to its own specialized search results. In the market for Internet search, Internet users want free search, and advertisers want viewers. Google’s largest source of revenue is from advertising, and demand from advertisers depends on consumers’ demand to use Google as their preferred search engine. It is in the best interest of Google to employ a particular ranking methodology only if it helps to attract and retain search engine users.

Consumers can switch to substitute search engines instantaneously and at zero cost.

If consumers want to access those vertical search sites and if Google excludes them, then consumers have the option to switch to an alternative search engine such as Bing. It is evident that consumers value the display of specialized search results as a product improvement to search, because Bing, Yahoo, and Ask.com all include specialized search results on the top of their own general results pages. Courts have long recognized that a business practice likely has “redeeming competitive virtues” when all competitors use it.4 If Google is giving consumers what they want by displaying competing vertical search providers’ links below Google’s own specialized search results, it cannot be acting anticompetitively.

One proposed “remedy” that critics seek with respect to Google’s ranking of its specialized search results is to declare top ranking on a Google search results page an “essential facility” under antitrust law and require Google to provide rivals with free access to its top search positions. That proposed intervention underscores that the antitrust complaints of Google’s competitors deviate from the interests of consumers. Besides the fact that it would be virtually impossible for every competing search engine to be the top search result, providing anyone with access to the top ranking would defeat the purpose of rankings. The rankings would no longer be useful to consumers: competitors would no longer need to earn a top ranking by providing end users with the content that best answers their search queries. The quality of Google search would fall, and consumers would be left with fewer high quality options in the Internet search market.

Punishing Google for being a successful competitor would stifle innovation and dynamic competition. A “successful prosecution” of Google for its search practices would necessitate regulating search algorithms and product improvements, which would chill the current pace of innovation in Internet search that has until now created enormous gains in consumer welfare.

The choice left for Google and all search providers would be either to innovate — and subsequently be subject to antitrust scrutiny once the innovation has achieved widespread adoption — or to avoid antitrust scrutiny by not innovating. Such use of antitrust law undermines its unequivocal purpose — to protect consumers.

Robert H. Bork is a former circuit judge of the U.S. Court of Appeals for the District of Columbia Circuit and former solicitor general of the United States. Gregory Sidak is chairman of Criterion Economics, LLC and the Ronald Coase Professor of Law and Economics at Tilburg University in the Netherlands.

FURTHER READING: Bork and Sidak also write a white paper applying a Chicago School analysis to Internet search;  it received support from Google, but the views expressed are solely their own. Alan D. Viard highlights “A Free-Market Outpost in the Midwest.” James V. DeLong contributes “Googling the Book Settlement.” Michael M. Rosen asks “Free Speech for Me, But Not for Thee, PC?” Roger Bate discusses “Google's Ad Freedom Wrongly Curtailed” and Jeffrey Eisenach says “The Internet Doesn’t Need More Regulation.”

Footnotes:

1. Frank H. Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1, 5 (1984).
2. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (emphasis added).
3. Transcript of Hearing on Competition in Online Markets/Internet Search Issues Before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights (Sept. 21, 2011) (oral testimony of Thomas O. Barnett, Covington & Burling LLP, at 43).
4. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 226 (D.C. Cir. 1986) (Bork, J.).

Image by Darren Wamboldt / Bergman Group

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