Last week I linked to my new study on “search bias.”  At the time I noted I would have a few blog posts in the coming days discussing the study.  This is the first of those posts.

A lot of the frenzy around Google turns on “search bias,” that is, instances when Google references its own links or its own content (such as Google Maps or YouTube) in its search results pages.  Some search engine critics condemn such references as inherently suspect and almost by their very nature harmful to consumers.  Yet these allegations suffer from several crucial shortcomings.  As I’ve noted (see, e.g., here and here), these naked assertions of discrimination are insufficient to state a cognizable antitrust claim, divorced as they are from consumer welfare analysis.  Indeed, such “discrimination” (some would call it “vertical integration”) has a well-recognized propensity to yield either pro-competitive or competitively neutral outcomes, rather than concrete consumer welfare losses.  Moreover, because search engines exist in an incredibly dynamic environment, marked by constant innovation and fierce competition, we would expect different engines, utilizing different algorithms and appealing to different consumer preferences, to emerge.  So when search engines engage in product differentiation of this sort, there is no reason to be immediately suspicious of these business decisions.

No reason to be immediately suspicious – but there could, conceivably, be a problem.  If there is, we would want to see empirical evidence of it—of both the existence of bias, as well as the consumer harm emanating from it.  But one of the most notable features of this debate is the striking lack of empirical data.  Surprisingly little research has been done in this area, despite frequent assertions that own-content bias is commonly practiced and poses a significant threat to consumers (see, e.g., here).

My paper is an attempt to rectify this.  In the paper, I investigate the available data to determine whether and to what extent own-content bias actually occurs, by analyzing and replicating a study by Ben Edelman and Ben Lockwood (E&L) and conducting my own study of a larger, randomized set of search queries.

In this post I discuss my analysis and critique of E&L; in future posts I’ll present my own replication of their study, as well as the results of my larger study of 1,000 random search queries.  Finally, I’ll analyze whether any of these findings support anticompetitive foreclosure theories or are otherwise sufficient to warrant antitrust intervention.

E&L “investigate . . . [w]hether search engines’ algorithmic results favor their own services, and if so, which search engines do most, to what extent, and in what substantive areas.”  Their approach is to measure the difference in how frequently search engines refer to their own content relative to how often their rivals do so.

One note at the outset:  While this approach provides useful descriptive facts about the differences between how search engines link to their own content, it does little to inform antitrust analysis because Edelman and Lockwood begin with the rather odd claim that competition among differentiated search engines for consumers is a puzzle that creates an air of suspicion around the practice—in fact, they claim that “it is hard to see why results would vary . . . across search engines.”  This assertion, of course, is simply absurd.  Indeed, Danny Sullivan provides a nice critique of this claim:

It’s not hard to see why search engine result differ at all.  Search engines each use their own “algorithm” to cull through the pages they’ve collected from across the web, to decide which pages to rank first . . . . Google has a different algorithm than Bing.  In short, Google will have a different opinion than Bing.  Opinions in the search world, as with the real world, don’t always agree.

Moreover, this assertion completely discounts both the vigorous competitive product differentiation that occurs in nearly all modern product markets as well as the obvious selection effects at work in own-content bias (Google users likely prefer Google content).  This combination detaches E&L’s analysis from the consumer welfare perspective, and thus antitrust policy relevance, despite their claims to the contrary (and the fact that their results actually exhibit very little bias).

Several methodological issues undermine the policy relevance of E&L’s analysis.  First, they hand select 32 search queries and execute searches on Google, Bing, Yahoo, AOL and Ask.  This hand-selected non-random sample of 32 search queries cannot generate reliable inferences regarding the frequency of bias—a critical ingredient to understanding its potential competitive effects.  Indeed, E&L acknowledge their queries are chosen precisely because they are likely to return results including Google content (e.g., email, images, maps, video, etc.).

E&L analyze the top three organic search results for each query on each engine.  They find that 19% of all results across all five search engines refer to content affiliated with one of them.  They focus upon the first three organic results and report that Google refers to its own content in the first (“top”) position about twice as often as Yahoo and Bing refer to Google content in this position.  Additionally, they note that Yahoo is more biased than Google when evaluating the first page rather than only the first organic search result.

E&L also offer a strained attempt to deal with the possibility of competitive product differentiation among search engines.  They examine differences among search engines’ references to their own content by “compar[ing] the frequency with which a search engine links to its own pages, relative to the frequency with which other search engines link to that search engine’s pages.”  However, their evidence undermines claims that Google’s own-content bias is significant and systematic relative to its rivals’.  In fact, almost zero evidence of statistically significant own-content bias by Google emerges.

E&L find, in general, Google is no more likely to refer to its own content than other search engines are to refer to that same content, and across the vast majority of their results, E&L find Google search results are not statistically more likely to refer to Google content than rivals’ search results.

The same data can be examined to test the likelihood that a search engine will refer to content affiliated with a rival search engine.  Rather than exhibiting bias in favor of an engine’s own content, a “biased” search engine might conceivably be less likely to refer to content affiliated with its rivals.  The table below reports the likelihood (in odds ratios) that a search engine’s content appears in a rival engine’s results.

The first two columns of the table demonstrate that both Google and Yahoo content are referred to in the first search result less frequently in rivals’ search results than in their own.  Although Bing does not have enough data for robust analysis of results in the first position in E&L’s original analysis, the next three columns in Table 1 illustrate that all three engines’ (Google, Yahoo, and Bing) content appears less often on the first page of rivals’ search results than on their own search engine.  However, only Yahoo’s results differ significantly from 1.  As between Google and Bing, the results are notably similar.

E&L also make a limited attempt to consider the possibility that favorable placement of a search engine’s own content is a response to user preferences rather than anticompetitive motives.  Using click-through data, they find, unsurprisingly, that the first search result tends to receive the most clicks (72%, on average).  They then identify one search term for which they believe bias plays an important role in driving user traffic.  For the search query “email,” Google ranks its own Gmail first and Yahoo Mail second; however, E&L also find that Gmail receives only 29% of clicks while Yahoo Mail receives 54%.  E&L claim that this finding strongly indicates that Google is engaging in conduct that harms users and undermines their search experience.

However, from a competition analysis perspective, that inference is not sound.  Indeed, the fact that the second-listed Yahoo Mail link received the majority of clicks demonstrates precisely that Yahoo was not competitively foreclosed from access to users.  Taken collectively, E&L are not able to muster evidence of potential competitive foreclosure.

While it’s important to have an evidence-based discussion surrounding search engine results and their competitive implications, it’s also critical to recognize that bias alone is not evidence of competitive harm.  Indeed, any identified bias must be evaluated in the appropriate antitrust economic context of competition and consumers, rather than individual competitors and websites.  E&L’s analysis provides a useful starting point for describing how search engines differ in their referrals to their own content.  But, taken at face value, their results actually demonstrate little or no evidence of bias—let alone that the little bias they do find is causing any consumer harm.

As I’ll discuss in coming posts, evidence gathered since E&L conducted their study further suggests their claims that bias is prevalent, inherently harmful, and sufficient to warrant antitrust intervention are overstated and misguided.

Filed under: antitrust, business, economics, google, Internet search, law and economics, monopolization, technology Tagged: antitrust, Bing, google, search, search bias, Search Engines, search neutrality, Web search engine, Yahoo

Many antitrust law professors are fond of using arson — e.g., a firm burning down the rival’s factory — as the paradigmatic example of exclusionary conduct that might raise rivals’ costs without plausible efficiency justifications.  Here is a modern example with law school hypothetical written all over it involving a Domino’s Pizza manager burning down a competing Papa John’s franchise:

Two managers of a Domino’s Pizza restaurant in Florida were facing arson charges Saturday after allegedly burning down a competing Papa John’s franchise in an attempt to increase sales, the Ocala Star-Banner reported.

The Oct. 20 fire at the Papa John’s in Lake City, Fla. — about 60 miles west of Jacksonville — was ruled to be a case of arson shortly after it was set alight. The blaze completely gutted the business, Lake City Police Department spokesman Capt. John Blanchard.

An investigation resulted in the arrest of 23-year-old Sean Everett Davidson on Thursday and 22-year-old Bryan David Sullivan on Friday. Both were charged with arson. Both men confessed to the crime and were booked into county jail.

Sullivan said he set the fire so the Papa John’s location would go out of business and sales at his Domino’s location would increase, according to police.

HT: a loyal TOTM reader.

 

Filed under: antitrust, exclusionary conduct

Summary

Search engines produce immense value by identifying, organizing, and presenting the Internet´s information in response to users´ queries.1 Search engines efficiently provide better and faster answers to users´ questions than alternatives.

Recently, critics have taken issue with the various methods search engines use to identify relevant content and rank search results for users. Google, in particular, has been the subject of much of this criticism on the grounds that its organic search results—those generated algorithmically—favor its own products and services at the expense of those of its rivals. It is widely understood that search engines´ algorithms for ranking various web pages naturally differ. Likewise, there is widespread recognition that competition among search engines is vigorous, and that differentiation between engines´ ranking functions is not only desirable, but a natural byproduct of competition, necessary to survival, and beneficial to consumers.2 Nonetheless, despite widespread recognition of the consumer benefits of such differentiation, complaints from rival search engines have persisted and succeeded in attracting attention from a number of state, federal and international regulatory agencies. Unfortunately, much of this attention has focused on the impact upon individual websites of differences among search engines´ algorithmic methods of identifying and ranking relevant content, rather than analyzing these differences from a conventional consumer?welfare driven antitrust analysis.

For example, many of these complaints ignore the fact that search engine users self?select into different engines or use multiple engines for different types of searches when considering the competitive implications of search rankings.3 Rather than focus upon competition among search engines in how results are identified and presented to users, critics and complainants craft their arguments around alleged search engine “discrimination” or “bias.”4 The complainants must have in mind something other than competitive decisions to rank content that differ from the decisions made by rivals; bias in this sense is both necessary to and inherent within any useful indexing tool. Yet, critics have generally avoided a precise definition of the allegedly troublesome conduct. Indeed, the term “bias” is used colloquially and is frequently invoked in the search engine debate to encompass a wide array of behavior—generally suggesting a latent malignancy within search engine conduct—with some critics citing mere differences in results across engines as evidence of harmful conduct.5

The more useful attempts to define “bias,” however, focus upon differences in organic rankings attributable to the search engine ranking its own content (“owncontent bias”); that is, a sufficient condition for own?content bias is that a search engine ranks its own content more prominently than its rivals do. To be even more precise about the nature of the alleged “own?content bias,” it should be clear that this form of  bias refers exclusively to organic results, i.e., those results the search engine produces algorithmically, as distinguished from the paid advertisements that might appear at the top, bottom, or right?hand side of a search result page.6 Critics at the Senate’s recent hearing on the “Power of Google” were particularly vociferous on this front, accusing Google of having “cooked”7 its algorithm and of “rig[ging] its results, biasing in favor of Google.”8

Competition economists and regulatory agencies are familiar with business arrangements which give rise to concerns of own?content bias.9 Complaints and economic theories of harm assert that a vertically integrated firm (in this case, Google offers search results as well as products like YouTube and Google Maps) might discriminate against its rivals by “foreclosing” them from access to a critical input. Here, the critical input necessary for rivals´ success is alleged to be prominent placement in Google´s search results. The economics of the potential anticompetitive exclusion of rivals involving vertically integrated firms are well understood in antitrust. The conditions that must be satisfied for these concerns to generate real risk to consumers are also well known. Over a century of antitrust jurisprudence, economic study, and enforcement agency practice have produced a well?understood economic analysis of the competitive effects of a vertically integrated firm´s “discrimination” in favor of its own products or services, including widespread recognition that such arrangements generally produce significant benefits for consumers. Modern competition policy recognizes that vertical integration and contractual arrangements are generally procompetitive; it also understands that discrimination of this sort may create the potential for competitive harm under some conditions. Sensible competition policy involving vertical integration and contractual arrangements requires one to be sensitive to the potential consumer welfare?enhancing potential of such vertical integration while also taking seriously the possibility that a firm might successfully harm competition itself (and not merely a rival).

In addition to the failure to distinguish procompetitive conduct from anticompetitive behavior, critics´ allegations of own?content bias suffer deeper conceptual ambiguities. The perceived issue for Google´s rivals is not merely that Google links to a map when responding to search queries, suggesting one might be  relevant for the user; indeed, rival search engines frequently respond to similar user queries with their own or other map products. Rather, critics find problematic that Google responds to user queries with a Google Map. This is a critical distinction because it concedes that rivals´ complaints are not satisfied by the response that consumers are better off with the map; nor do critics pause to consider that perhaps the Google search user prefers the Google Map to rival products.10 Thus, critics brazenly take issue with the relationship between Google and the search result even where they concede Google produces more relevant results for consumers.11 Rather than focusing upon consumers, critics argue that the fact that Google is affiliated with the referred search result is itself prima facie evidence of competitively harmful bias.12 On its face, this argument turns conventional antitrust wisdom on its head. Conduct that harms rivals merely because it attracts consumers from rivals is the essence of competition and the logical core of the maxim that antitrust protects “competition, not competitors.?13

Critics´ failure to account for the potential consumer benefits from ?own?content bias? extends beyond ignoring the fact that users might prefer Google´s products to rivals´. Most critics simply ignore the myriad of procompetitive explanations for vertical integration in the economics literature. This omission by critics, and especially by economist critics, is mystifying given that economists have documented not only a plethora of procompetitive justifications for such integration, but also that such vertical relationships are much more likely to be competitively beneficial or benign than to raise serious threats of foreclosure.14

The critical antitrust question is always whether the underlying conduct creates or maintains monopoly power and thus reduces competition and consumer welfare, or is more likely efficient and procompetitive. To be clear, documenting the mere existence of own?content bias itself does little to answer this question. Bias is not a sufficient condition for competitive harm as a matter of economics because it can increase, decrease, or have no impact at all upon consumer welfare; neither is bias, without more, sufficient to state a cognizable antitrust claim.15

Nonetheless, documenting whether and how much of the alleged bias exists in Google´s and its rivals´ search results can improve our understanding of its competitive implications—that is, whether the evidence of discrimination in favor of one´s own content across search engines is more consistent with anticompetitive foreclosure or with competitive differentiation.

Critically, in order to generate plausible competitive concerns, search bias must, at minimum, be sufficient in magnitude to foreclose rivals from achieving minimum efficient scale (otherwise, if it merely represents effective competition that makes life harder for competitors, it is not an antitrust concern at all). It follows from this necessary condition that not all evidence of ?bias? is relevant to this competitive concern; in particular, Google referring to its own products and services more prominently than its rivals rank those same services has little to do with critics´ complaints unless they implicate general or vertical search.

Despite widespread discussion of search engine bias, virtually no evidence exists indicating that bias abounds—and very little that it exists at all. Edelman & Lockwood recently addressed this dearth of evidence by conducting a small study focused upon own?content bias in 32 search queries. They contend that their results are indicative of systemic and significant bias demanding antitrust intervention.16 The authors define and measure ?bias? as the extent to which a search engine´s ranking of its own content differs from how its rivals rank the same content. This approach provides some useful information concerning differences among search engine rankings. However, the study should not be relied upon to support broad sweeping antitrust policy concerns with Google.

The small sample of search queries provides one reason for caution. Perhaps more importantly, the non?random sample of search queries undermines its utility for addressing the critical antitrust policy questions focusing upon the magnitude of search bias, both generally and as it relates to whether the degree and nature of observed bias satisfies the well?known conditions required for competitive foreclosure. Further, evaluating their evidence at face value, Edelman & Lockwood misinterpret its relevance (Edelman & Lockwood in fact find almost no evidence of bias) and, most problematically, simply assume that own?content bias is inherently suspect from a consumer welfare perspective rather than considering the well?known consumer benefits of vertical integration. Despite these shortcomings, Edelman & Lockwood´s study has received considerable attention, both in the press and from Google´s critics, who cite it as evidence of harmful and anticompetitive search engine behavior.17 In the present analysis, as a starting point, we first “replicate” and analyze Edelman & Lockwood´s earlier study of a small, non?random sample of search queries in the modern search market. We then extend this methodology to a larger random sample of search queries in order to draw more reliable inferences concerning the answers to crucial questions for the competition policy debate surrounding search engine bias, including: (1) what precisely is search engine bias?; (2) what are its  competitive implications?; (3) how common is it?; (4) what explains its existence and relative frequency across search engines?; and, most importantly, (5) does observed search engine bias pose a competitive threat or is it a feature of competition between search engines?

Part I of this paper articulates an antitrust?appropriate framework for analyzing claims of “own?content bias” and delineates its utility and shortcomings as a theory of antitrust harm; it further evaluates Edelman & Lockwood’s study, methodology and analysis using this framework. Part II lays out the methodology employed in our own studies. Part III presents the results of our replication of Edelman & Lockwood and analyzes antitrust implications for the search engine bias debate; Part IV does the same for our larger, random sample of search queries. Part V concludes.

The 10th Annual International Industrial Organization Conference will be held at GMU Law in Arlington, VA March 16-18, 2012.  Along with Chris Adams (FTC), and the Program Committee, I am helping out with some of the local organization.  For those interested in antitrust and regulatory issues specifically, or IO economics more generally, this is a great event and we hope you will consider coming or submitting a paper/ abstract.

The website linked above has all of the relevant registration and lodging details.  Here is the IIOC Conference Announcement:

The 2012 International Industrial Organization Conference, sponsored by the Industrial Organization Society and its affiliated journal, the Review of Industrial Organization, will be held March 16-18 at the George Mason University School of Law in Arlington, Virginia.  The conference will include Richard Schmalensee as keynote speaker, panel discussions and contributed sessions on all topics and from all perspectives of industrial organization including antitrust economics and regulation.

If you wish to submit an abstract or a complete session to the conference, please use the web interface.

DEADLINES:  Paper submissions through the web link above will be accepted through December 19, 2011.  There is no submission fee.  Decisions will be announced by January 16, 2012.  Paper presenters must register by February 13, 2012.  Non-presenters may register up to March 1.  There will be no on-site registration.

CONFERENCE GUIDELINES:  Accepted papers are to be presented by the individual submitting the paper.  Paper acceptances are also strictly conditional on the submitter’s willingness to serve as a discussant in another session of the conference.

RISING STAR SESSIONS:  We are again having a special session on Friday evening for graduate students.  Papers in this session will be discussed by established faculty and the sessions will be chaired by established and distinguished faculty in Industrial Organization. This is a great opportunity for students to get feedback on their work and meet with established researchers in their field.

PROGRAM COMMITTEE:   The Program Committee is chaired by Ken Boyer and George Deltas.

FURTHER INFORMATION:  The conference website, http://www.ios.neu.edu, will provide updated registration, hotel and schedule information.  The preliminary conference program will be posted there by February 10, 2012.

Filed under: antitrust, economics

First, Google had the audacity to include a map in search queries suggesting a user wanted a map.  Consumers liked it.  Then came video.  Then, they came for the beer:

Google’s first attempt at brewing has resulted in a beer that taps ingredients from all across the globe. They teamed up with Delaware craft brewery Dogfish Head to make “URKontinent,” a Belgian Dubbel style beer with flavors from five different continents.

No word yet from the Google’s antitrust-wielding critics whether integration into beer will exclude rivals who vertical search engines who, without access to the beer, have no chance to compete.  Yes, there are specialized beer search sites if you must know (or local beer search).  Or small breweries who, because of Google’s market share in search, cannot compete against Dogfish Head’s newest product.  But before we start the new antitrust investigation, Google has offered some new facts to clarify matters:

Similarly, the project with Dogfish Head brewery was a Googler-driven project organized by a group of craftbrewery aficionados across the company. While our Googlers had fun advising on the creation of a beer recipe, we aren’t receiving any proceeds from the sale of the beer and we have no plans to enter the beer business.

Whew.  What a relief.  But, I’m sure the critics will be watching just in case to see if Dogfish Head jumps in the search rankings.  Donating time and energy to the creation of beer is really just a gateway to more serious exclusionary conduct, right?  And Section 5 of the FTC Act applies to incipient conduct in the beer market, clearly.  Or did the DOJ get beer-related Google activities in the clearance arrangement between the agencies?

Filed under: alcohol, antitrust, beer, clearance, doj, federal trade commission, google, musings

The DOJ has announced that it will close 4 Antitrust Division Field Offices.  From the DOJ press release:

Consolidate Antitrust Division field office space in Atlanta, Cleveland, Dallas and Philadelphia into the Chicago, New York and San Francisco field offices as well as the division’s Washington, D.C.-based section.   Ninety-four positions will be reassigned to the remaining field offices and to the Washington, D.C., section in order to provide additional staffing resources to larger investigations.   A savings of nearly $8 million is expected.

The field offices are a significant part of Division’s criminal enforcement efforts (amongst other things).  While the consolidation plan offers relocation to the 94 lawyers and staff willing to move to Chicago, NY, San Francisco or to Washington, there are quite a few career Division lawyers who have no interest in doing so.   The Washington Post reports:

But career antitrust lawyers affected by the plans said they were caught off guard, and they think the plans will result in de facto layoffs as colleagues decide to quit because they are unable or unwilling to move to another city.  “There aren’t a lot of people who’ve been with the division a long time who can pick up and move,” said an antitrust attorney based in the Philadelphia office. “Many people have families and spouses with jobs where they’re already located. And there’s no assurances that in two years there won’t be further cuts, and then we’ll lose a job we picked up and moved for.”  Veteran antitrust attorneys from all four targeted offices contacted The Federal Eye and asked not to be identified for fear of retribution.

I suspect there will be a lot more written about this in the days and weeks to come.

Filed under: antitrust, cartels, doj

It is not exactly the application of the consumer welfare standard, nor a scientific survey, but nonetheless an interesting poll at the American Bar Association Antitrust & Intellectual Property Conference before and after presentations from lawyers representing each side.  The results?

While this is an admittedly small sample size and may not be representative of antitrust lawyers on a more widespread basis, a poll taken at an American Bar Association event at Stanford University reveals that nearly 3/4 of the antitrust lawyers present didn’t feel that Google was hurting competition.  The event was a debate and polling before the debate had attendees of the debate set at 61% not feeling that Google has hurt competition.  Those on the other side of the debate? Before it got underway 19% felt that Google was hurting competition and that number lowered slightly to 17% following the exchange.

Interesting results for a group of antitrust lawyers hearing out some version of the arguments likely to be made in from of the antitrust lawyers at the Federal Trade Commission.

UPDATE: Here is Manne & Wright (2011) on the case against the case against Google in the Harvard Journal of Law & Public Policy.

Filed under: antitrust, federal trade commission, google

[I am participating in an online “debate” at the American Constitution Society with Professor Ben Edelman.  The debate consists of an opening statement and concluding responses to be posted later in the week.  Professor Edelman’s opening statement is here.  I am cross-posting my opening statement here at TOTM.  This is my closing statement]

Professor Edelman’s opening post does little to support his case.  Instead, it reflects the same retrograde antitrust I criticized in my first post.

Edelman’s understanding of antitrust law and economics appears firmly rooted in the 1960s approach to antitrust in which enforcement agencies, courts, and economists vigorously attacked novel business arrangements without regard to their impact on consumers.  Judge Learned Hand’s infamous passage in the Alcoa decision comes to mind as an exemplar of antitrust’s bad old days when the antitrust laws demanded that successful firms forego opportunities to satisfy consumer demand.  Hand wrote:

we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.

Antitrust has come a long way since then.  By way of contrast, today’s antitrust analysis of alleged exclusionary conduct begins with (ironically enough) the U.S. v. Microsoft decision.  Microsoft emphasizes the difficulty of distinguishing effective competition from exclusionary conduct; but it also firmly places “consumer welfare” as the lodestar of the modern approach to antitrust:

Whether any particular act of a monopolist is exclusionary, rather than merely a form of vigorous competition, can be difficult to discern: the means of illicit exclusion, like the means of legitimate competition, are myriad.  The challenge for an antitrust court lies in stating a general rule for distinguishing between exclusionary acts, which reduce social welfare, and competitive acts, which increase it.  From a century of case law on monopolization under § 2, however, several principles do emerge.  First, to be condemned as exclusionary, a monopolist’s act must have an “anticompetitive effect.”  That is, it must harm the competitive process and thereby harm consumers.  In contrast, harm to one or more competitors will not suffice.

Nearly all antitrust commentators agree that the shift to consumer-welfare focused analysis has been a boon for consumers.  Unfortunately, Edelman’s analysis consists largely of complaints that would have satisfied courts and agencies in the 1960s but would not do so now that the focus has turned to consumer welfare rather than indirect complaints about market structure or the fortunes of individual rivals.

From the start, in laying out his basic case against Google, Edelman invokes antitrust concepts that are simply inapt for the facts and then goes on to apply them in a manner inconsistent with the modern consumer-welfare-oriented framework described above:

In antitrust parlance, this is tying: A user who wants only Google Search, but not Google’s other services, will be disappointed.  Instead, any user who wants Google Search is forced to receive Google’s other services too.  Google’s approach also forecloses competition: Other sites cannot compete on their merits for a substantial portion of the market – consumers who use Google to find information – because Google has kept those consumers for itself.

There are two significant errors here.  First, Edelman claims to be interested in protecting users who want only Google Search but not its other services will be disappointed.  I have no doubt such consumers exist.  Some proof that they exist is that a service has already been developed to serve them.  Professor Edelman, meet Googleminusgoogle.com.  Across the top the page reads: “Search with Google without getting results from Google sites such as Knol, Blogger and YouTube.”  In antitrust parlance, this is not tying after all.  The critical point, however, is that user preferences are being satisfied as one would expect to arise from competition.

The second error, as I noted in my first post, is to condemn vertical integration as inherently anticompetitive.  It is here that the retrograde character of Professor Edelman’s analysis (and other critics of Google, to be fair) shines brightest.  It reflects a true disconnect between the 1960s approach to antitrust which focused exclusively upon market structure and impact upon rival websites; impact upon consumers was nowhere to be found.  That Google not only produces search results but also owns some of the results that are searched is not a problem cognizable by modern antitrust.  Edelman himself—appropriately—describes Google and its competitors as “information services.”  Google is not merely a URL finder.  Consumers demand more than that and competition forces search engines to deliver.  It offers value to users (and thus it can offer users to advertisers) by helping them find information in increasingly useful ways.  Most users “want Google Search” to the exclusion of Google’s “other services” (and, if they do, all they need do is navigate over to http://googleminusgoogle.com/ (even in a Chrome browser) and they can have exactly that).  But the critical point is that Google’s “other services” are methods of presenting information to consumers, just like search.  As the web and its users have evolved, and as Google has innovated to keep up with the evolving demands of consumers, it has devised or employed other means than simply providing links to a set of URLs to provide the most relevant information to its users.  The 1960s approach to antitrust condemns this as anticompetitive foreclosure; the modern version recognizes it as innovation, a form of competition that benefits consumers.

Edelman (and other critics, including a number of Senators at last month’s hearing) hearken back to the good old days and suggest that any deviation from Google’s technology or business model of the past is an indication of anticompetitive conduct:

The Google of 2004 promised to help users “leave its website as quickly as possible” while showing, initially, zero ads.  But times have changed.  Google has modified its site design to encourage users to linger on other Google properties, even when competing services have more or better information.  And Google now shows as many fourteen ads on a page.

It is hard to take seriously an argument that turns on criticizing a company simply for looking different than it did seven years ago.  Does anybody remember what search results looked like 7 years ago?  A theory of antitrust liability that would condemn a firm for investing billions of dollars in research and product development, constantly evolving its product to meet consumer demand, taking advantage of new technology, and developing its business model to increase profitability should not be taken seriously.  This is particularly true where, as here, every firm in the industry has followed a similar course, adopting the same or similar innovations.  I encourage readers to try a few queries on http://www.bing-vs-google.com/– where you can get side by side comparisons – in order to test whether the evolution of search results and innovation to meet consumer preferences is really a Google-specific thing or an industry wide phenomenon consistent with competition.  Conventional antitrust analysis holds that when conduct is engaged in not only by allegedly dominant firms, but also by every other firm in an industry, that conduct is presumptively efficient, not anticompetitive.

The main thrust of my critique is that Edelman and other Google critics rely on an outdated antitrust framework in which consumers play little or no role.  Rather than a consumer-welfare based economic critique consistent with the modern approach, these critics (as Edelman does in his opening statement) turn to a collection of anecdotes and “gotcha” statements from company executives.  It is worth correcting a few of those items here, although when we’ve reached the point where identifying a firm’s alleged abuse is a function of defining what a “confirmed” fax is, we’ve probably reached the point of decreasing marginal returns.  Rest assured that a series of (largely inaccurate) anecdotes about Google’s treatment of particular websites or insignificant contract terms is wholly insufficient to meet the standard of proof required to make a case against the company under the Sherman Act or even the looser Federal Trade Commission Act.

• It appears to be completely inaccurate to say that “[a]n unsatisfied advertiser must complain to Google by ‘first class mail or air mail or overnight courier’ with a copy by ‘confirmed facsimile.’”  A quick search, even on Bing, leads one to this page, indicating that complaints may be submitted via web form.
• It is likewise inaccurate to claim that “advertisers are compelled to accept whatever terms Google chooses to impose.  For example, an advertiser seeking placement through Google’s premium Search Network partners (like AOL and The New York Times) must also accept placement through the entire Google Search Network which includes all manner . . . undesirable placements.”  In actuality, Google offers a “Site and Category Exclusion Tool” that seems to permit advertisers to tailor their placements to exclude exactly these “undesirable placements.”
• “Meanwhile, a user searching for restaurants, hotels, or other local merchants sees Google Places results with similar prominence, pushing other information services to locations users are unlikely to notice.”  I have strived in vain to enter a search for a restaurant, hotel, or the like into Google that yielded results that effectively hid “other information services” from my notice, but for some of my searches, Google Places did come up first or second (and for others it showed up further down the page).
• Edelman has noted elsewhere that, sometimes, for some of the searches he has tested, the most popular result on Google (as well, I should add, on other, non-“dominant” sites) is not the first, Google-owned result, but instead the second.  He cites this as evidence that Google is cooking the books, favoring its own properties when users actually prefer another option.  It actually doesn’t demonstrate that, but let’s accept the claim for the sake of argument.  Notice what his example also demonstrates: that users who prefer the second result to the first are perfectly capable of finding it and clicking on it.  If this is foreclosure, Google is exceptionally bad at it.

The crux of Edelman’s complaint seems to be that Google is competing in ways that respond to consumer preferences.  This is precisely what antitrust seeks to encourage, and we would not want a set of standards that chilled competition because of a competitor’s success.  Having been remarkably successful in serving consumers’ search demands in a quickly evolving market, it would be perverse for the antitrust laws to then turn upon Google without serious evidence that it had, in fact, actually harmed consumers.

Untethered from consumer welfare analysis, antitrust threatens to re-orient itself to the days when it was used primarily as a weapon against rivals and thus imposed a costly tax on consumers.  It is perhaps telling that Microsoft, Expedia, and a few other Google competitors are the primary movers behind the effort to convict the company.  But modern antitrust, shunning its inglorious past, requires actual evidence of anticompetitive effect before condemning conduct, particularly in fast-moving, innovative industries.  Neither Edelman nor any of Google’s other critics, offer any.

During the heady days of the Microsoft antitrust case, the big question was whether modern antitrust would be able to keep up with quickly evolving markets.  The treatment of the proferred case against Google is an important test of the proposition (endorsed by the Antitrust Modernization Commission and others) that today’s antitrust is capable of consistent and coherent application in innovative, high-tech markets.  An enormous amount is at stake.  Faced with the high stakes and ever-evolving novelty of high-tech markets, antitrust will only meet this expectation if it remains grounded and focused on the core principle of competitive effects and consumer harm.  Without it, antitrust will devolve back into the laughable and anti-consumer state of affairs of the 1960s—and we will all pay for it.

Filed under: antitrust, consumer protection, economics, error costs, exclusionary conduct, federal trade commission, google, monopolization, technology, tying