Brian Albrecht and Thom Lambert on Shelf Space Promotions

Medium – ICLE Chief Economist Brian Albrecht and Academic Affiliate Thom Lambert were cited by Adam Kovacevich in a story published by Medium about the role of self-preferencing in the U.S. Justice Department’s upcoming Google case. You can read full piece here.

As Brian Albrecht noted:

In the case of retail trade promotions, a promotional space given to Coca-Cola makes it marginally easier for consumers to pick Coke, and therefore some consumers will switch from Pepsi to Coke. But it does not reduce any consumer’s choice. The store will still have both items.

…In other words, regulators or courts banning search default deals or slotting fees would likely only reaffirm the market-leading position of both Google and Oreos — but result in decreased revenue for the access points, Mozilla and Kroger. Or as Thom Lambert put it:

“The government’s success in its challenge to Google’s Apple payments would benefit Google at the expense of consumers: Google would almost certainly remain the default search engine on Apple products, as it is most preferred by consumers and no rival could pay to dislodge it; Google would not have to pay a penny to retain its default status; and Apple would lose revenues that it likely passes along to consumers in the form of lower prices.”

DOJ is likely to argue, as Lambert previewed, that Google’s deals give it higher search volume, which creates a “data barrier to entry” for Bing and DuckDuckGo — they don’t have enough scale to compete. As Lambert notes:

“In the government’s view, Google is legally obligated to forego opportunities to make its own product better so as to give its rivals a chance to improve their own offerings.”

But, he continues:

“This is inconsistent with U.S. antitrust law. Just as firms are not required to hold their prices high to create a price umbrella for their less efficient rivals, they need not refrain from efforts to improve the quality of their own offerings so as to give their rivals a foothold.”

…As Brian Albrecht put it:

Despite all the bells and whistles of the Google case…from an economic point of view, the contracts that Google signed are just trade promotions. No more, no less. And trade promotions are well-established as part of a competitive process that ultimately helps consumers.