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Google and Antitrust: Economic Liberty in the Balance

Way back when the DOJ brought an antitrust suit against Microsoft in 1990s, Milton Friedman had this to say to The Wall Street Journal:

"We've gradually come to the conclusion that, on the whole, [antitrust] does more harm than good." Antitrust laws, he says, "tend to become prey to the special interests. Right now, who is promoting the Microsoft case? It is their competitors, Sun Microsystems and Netscape."

Unfortunately, this tendency for antitrust to become prey for special interests continues today.  Antitrust law is supposed to be about promoting competition and assuring business conduct does not negatively affect consumer welfare.  All too often, though, self-interested actors in both public and private roles attempt to use these laws to further more nefarious goals.

The Supreme Court has repeatedly stated that antitrust laws "were enacted for 'the protection of competition not competitors.'" Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 n.14 (1984) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962))) (emphasis in original). This is because competition is vital for promoting consumer welfare. Nonetheless, one competitor of Google's, Nextag CEO Jeffrey Katz, has recently used the pages of The Wall Street Journal to argue for antitrust enforcement against the search engine giant because of perceived harms to his company. But once his argument is broken down and analyzed, it becomes apparent that this is essentially a complaint akin to Burger King criticizing McDonald's for failing to prominently display where consumers can get Whoppers.  If such complaints can be the basis of government intervention, then the antitrust laws will effectively become anti-competitive themselves, with economic liberty being destroyed along the way.

Katz starts his complaint by noting the size of Google's market share: "It is the most popular search engine in the world, controlling nearly 82% of the global search market and 98% of the mobile search market." While one could be tempted to simply answer with congratulations to Google for its success, the more apt response is that Google's search market share may not be relevant for antitrust purposes.  This is because Google is engaged in what economists call a "two-sided market." While most people use Google for its free search engine, Google makes its money by selling advertising space.  And, as an advertiser, Google's shares take up a drastically smaller fraction of the whole market (estimated around 7.5 percent of total world advertising). Once this is recognized, it becomes very difficult to argue Google is a monopolist capable of antitrust violations under Sherman Section 2.

Next, Katz complains that Google weights its algorithms in favor of its own products and away from competitors. This is a highly contentious charge, as Google denies doing this and points to the fact that Amazon and other specialty search sites are often listed above Google's own when they are a better answer for the query. Even if the charge were true, though, it would be an insufficient antitrust complaint unless Nextag could show how this harms consumers. On the contrary, Google's constant adjustment of its algorithm has improved consumer welfare by making searches more relevant, and its entry into product markets has improved consumer welfare by increasing competition.

Katz then points to the fact that the Europeans have been investigating Google and uses this guilt-by-association technique to cast aspersions upon Google's practices. However, when it comes to unilateral conduct, Europe's antitrust standards are not the same as the consumer welfare standard employed in the United States. Any comparison of the two should note this difference.

The next paragraph is the heart of the matter. Katz's essential complaint is that Google does not rank Nextag high enough in search results. Aside from the fact that several district courts and Eugene Volokh have argued that the First Amendment protects search results and that antitrust enforcement would be compelled speech, this is not even a cognizable antitrust harm. While it is to be expected that every CEO thinks that his or her company is the best, it is the height of chutzpah to expect a competitor to be forced to give you free advertisement space. As mentioned above, one would laugh out of court the idea that McDonald's should have to advertise for Burger King's Whopper.

Only if Nextag could show that Google is an essential facility could an antitrust case move forward. Such an argument is seemingly foreclosed by the fact that Google faces real competition in all search markets, but most especially in the product and service markets which provide most of the advertising income. There Google competes not only with other general search providers like Yahoo! and Bing, but also specialty search sites such as eBay, Amazon, Craigslist, Yelp, Priceline, and Expedia. Facebook and other social networking sites are also threatening to become search competitors who could substantially cut into Google's share of the market. At the very least, it cannot be said that one cannot find things on the Internet without the use of Google.

Further, Supreme Court caselaw has limited the ability of competitors to bring unilateral refusal to deal cases.  In Verizon Comm'ns, Inc. v. Law Offices of Curtis P. Trinko, LLP, 540 U.S. 398, 409 (2004), the Supreme Court noted that the limited exception from the general right to refuse to deal with competitors only applies when there is a "unilateral termination of a voluntary (and thus presumably profitable) course of dealing suggest[ing] a willingness to forsake short-term profits to achieve an anticompetitive end." This is likely not present here, as Nextag and Google still have a course of dealing and Nextag has not shown Google has forsaken any short-term profits.

Scholars have argued that antitrust administrators should be cognizant of false positives in which pro-competitive business practices are struck down. Any potential case against Google should keep this in mind. Unless harm to consumer welfare can be shown, complaints by competitors should not encourage enforcers of antitrust to bring down the hammer of antitrust law. Economic liberty hangs in the balance.