As the Google antitrust discussion heats up on its way toward some culmination at the FTC, I thought it would be helpful to address some of the major issues raised in the case by taking a look at what’s going on in the market(s) in which Google operates. To this end, I have penned a lengthy document — The Market Realities that Undermine the Antitrust Case Against Google — highlighting some of the most salient aspects of current market conditions and explaining how they fit into the putative antitrust case against Google.

Read the full piece here.

Last week the New York Times ran an article, “Building the Next Facebook a Tough Task in Europe“, by Eric Pfanner, discussing the lack of major high tech innovation in Europe.  Eric Pfanner discusses the importance of such investment, and then speculates on the reason for the lack of such innovation.  The ultimate conclusion is that there is a lack of venture capital in Europe for various cultural and historical reasons.  This explanation of course makes no sense.  Capital is geographically mobile and if European tech start ups were a profitable investment that Europeans were afraid to bankroll, American investors would be on the next plane.

Here is a better explanation.  In the name of “privacy,” the EU greatly restricts the use of consumer online  information.  Josh Lerner has a recent paper, “The Impact of Privacy Policy Changes on Venture Capital Investment in Online Advertising Companies” (based in part on the work of Avi Goldfarb and Catherine E. Tucker, “Privacy Regulation and Online Advertising“) finding that this restriction on the use of information is a large part of the explanation for the lack of tech investment in Europe.  Tom Lenard and I have written extensively about the costs of privacy regulation (for example, here) and this is just another example of these costs, although the costs are much greater in Europe than they are here (so far.)

Filed under: advertising, consumer protection, intellectual property, privacy, regulation, technology

A new rule kicks in today requiring airlines to include all taxes and mandatory fees in their advertised fares.  The rule, part of a broader “passengers’ bill of rights”-type regulation promulgated by the Department of Transportation, is being sold as a proconsumer mandate:  It purportedly protects consumers from the sticker shock that results when they learn that the true consumer price for a flight, due to taxes and mandatory fees, is much higher than the advertised price.

But how consumer-friendly is this rule?  Won’t it be easier to raise taxes and fees when they aren’t presented as a line item, when consumers aren’t “startled” to see the exorbitant amount they’re paying for government services?  Value-added taxes (VATs), which tax the incremental value added at each stage of production and are generally included in the posted price for an item, have proven easier to raise than sales taxes, which are added at the register.  That’s because the latter are more visible so that increases are more likely to generate political opposition.  While VATs are common throughout Europe, they’re virtually non-existent in the United States, in part because we Americans have recognized the important role “tax sticker shock” plays in creating political accountability.

Consumer advocates, nevertheless, are lauding the new Department of Transportation rule.  They don’t seem to realize that higher taxes are bad for consumers and that taxes are more likely to rise when the government can hide them.  They also seem to care little about consumer sovereignty.  Don’t consumers have a right to know how much they’re paying to have scads of Homeland Security officers bark orders at them and gawk at their privates?

 

Filed under: advertising, consumer protection, regulation, taxes

As has become customary with just about every new product announcement by Google these days, the company’s introduction on Tuesday of its new “Search, plus Your World” (SPYW) program, which aims to incorporate a user’s Google+ content into her organic search results, has met with cries of antitrust foul play. All the usual blustering and speculation in the latest Google antitrust debate has obscured what should, however, be the two key prior questions: (1) Did Google violate the antitrust laws by not including data from Facebook, Twitter and other social networks in its new SPYW program alongside Google+ content; and (2) How might antitrust restrain Google in conditioning participation in this program in the future?

Read the full piece here.

In yesterday’s Washington Post, Health and Human Services Secretary Kathleen Sebelius makes an impassioned plea for skeptics to reconsider the Affordable Care Act. Secretary Sebelius argues that the Act will bring down health care costs by, among other things, assisting those who cannot afford health insurance coverage. Although expanding health insurance coverage is a worthy goal, bringing more folks into the health care system could result in higher prices for health care services. The housing market provides a nice example: although subsidized mortgage rates allowed more people to own homes, more buyers eventually meant higher home prices.

Read the full piece here.

In my series of three posts (here, here and here) drawn from my empirical study on search bias I have examined whether search bias exists, and, if so, how frequently it occurs.  This, the final post in the series, assesses the results of the study (as well as the Edelman & Lockwood (E&L) study to which it responds) to determine whether the own-content bias I’ve identified is in fact consistent with anticompetitive foreclosure or is otherwise sufficient to warrant antitrust intervention.

As I’ve repeatedly emphasized, while I refer to differences among search engines’ rankings of their own or affiliated content as “bias,” without more these differences do not imply anticompetitive conduct.  It is wholly unsurprising and indeed consistent with vigorous competition among engines that differentiation emerges with respect to algorithms.  However, it is especially important to note that the theories of anticompetitive foreclosure raised by Google’s rivals involve very specific claims about these differences.  Properly articulated vertical foreclosure theories proffer both that bias is (1) sufficient in magnitude to exclude Google’s rivals from achieving efficient scale, and (2) actually directed at Google’s rivals.  Unfortunately for search engine critics, their theories fail on both counts.  The observed own-content bias appears neither to be extensive enough to prevent rivals from gaining access to distribution nor does it appear to target Google’s rivals; rather, it seems to be a natural result of intense competition between search engines and of significant benefit to consumers.

Vertical foreclosure arguments are premised upon the notion that rivals are excluded with sufficient frequency and intensity as to render their efforts to compete for distribution uneconomical.  Yet the empirical results simply do not indicate that market conditions are in fact conducive to the types of harmful exclusion contemplated by application of the antitrust laws.  Rather, the evidence indicates that (1) the absolute level of search engine “bias” is extremely low, and (2) “bias” is not a function of market power, but an effective strategy that has arisen as a result of serious competition and innovation between and by search engines.  The first finding undermines competitive foreclosure arguments on their own terms, that is, even if there were no pro-consumer justifications for the integration of Google content with Google search results.  The second finding, even more importantly, reveals that the evolution of consumer preferences for more sophisticated and useful search results has driven rival search engines to satisfy that demand.  Both Bing and Google have shifted toward these results, rendering the complained-of conduct equivalent to satisfying the standard of care in the industry–not restraining competition.

A significant lack of search bias emerges in the representative sample of queries.  This result is entirely unsurprising, given that bias is relatively infrequent even in E&L’s sample of queries specifically designed to identify maximum bias.  In the representative sample, the total percentage of queries for which Google references its own content when rivals do not is even lower—only about 8%—meaning that Google favors its own content far less often than critics have suggested.  This fact is crucial and highly problematic for search engine critics, as their burden in articulating a cognizable antitrust harm includes not only demonstrating that bias exists, but further that it is actually competitively harmful.  As I’ve discussed, bias alone is simply not sufficient to demonstrate any prima facie anticompetitive harm as it is far more often procompetitive or competitively neutral than actively harmful.  Moreover, given that bias occurs in less than 10% of queries run on Google, anticompetitive exclusion arguments appear unsustainable.

Indeed, theories of vertical foreclosure find virtually zero empirical support in the data.  Moreover, it appears that, rather than being a function of monopolistic abuse of power, search bias has emerged as an efficient competitive strategy, allowing search engines to differentiate their products in ways that benefit consumers.  I find that when search engines do reference their own content on their search results pages, it is generally unlikely that another engine will reference this same content.  However, the fact that both this percentage and the absolute level of own content inclusion is similar across engines indicates that this practice is not a function of market power (or its abuse), but is rather an industry standard.  In fact, despite conducting a much smaller percentage of total consumer searches, Bing is consistently more biased than Google, illustrating that the benefits search engines enjoy from integrating their own content into results is not necessarily a function of search engine size or volume of queries.  These results are consistent with a business practice that is efficient and at significant tension with arguments that such integration is designed to facilitate competitive foreclosure.

Inclusion of own content accordingly appears to be just one dimension upon which search engines have endeavored to satisfy and anticipate heterogeneous and dynamic consumer preferences.  Consumers today likely make strategic decisions as to which engine to run their searches on, and certainly expect engines to return far more complex results than were available just a few years ago. For example, over the last few years, search engines have begun “personalizing” search results, tailoring results pages to individual searchers, and allowing users’ preferences to be reflected over time.  While the traditional “10 blue links” results page is simply not an effective competitive strategy today, it appears that own-content inclusion is.  By developing and offering their own products in search results, engines are better able to directly satisfy consumer desires.

Moreover, the purported bias does not involve attempts to prominently display Google’s own general or vertical search content over that of rivals.  Consider the few queries in Edelman & Lockwood’s small sample of terms for which Google returned Google content within the top three results but neither Bing nor Blekko referenced the same content anywhere on their first page of results.  For the query “voicemail,” for example, Google refers to both Google Voice and Google Talk; both instances appear unrelated to the grievances of general and vertical search rivals.  The query “movie” results in a OneBox with the next 3 organic results including movie.com, fandango.com, and yahoo.movies.com.  The single instance in Edelman & Lockwood’s sample for which Google ranks its own content in the Top 3 positions but this content is not referred to at all on Bing’s first page of results is a link to blogger.com in response to the query “blog.”  It is difficult to construct a story whereby this result impedes Bing’s competitive position.  In fact, none of these examples suggests that efforts to anticompetitively foreclose rivals are in play.  To the contrary, each seems to be a result of simple and expected procompetitive product differentiation.

Overall, the evidence reveals very little search engine bias, and no overwhelming or systematic biasing by Google against  search competitors.  Indeed, the data simply do not support claims that own-content bias is of the nature, quality, or magnitude to generate plausible antitrust concerns.  To the contrary, the results strongly suggest that own-content bias fosters natural and procompetitive product differentiation.  Accordingly, search bias is likely beneficial to consumers—and is clearly not indicative of harm to consumer welfare.

Antitrust regulators should proceed with caution when evaluating such claims given the overwhelmingly consistent economic learning concerning the competitive benefits generally of vertical integration for consumers.  Serious care must be taken in order not to deter vigorous competition between search engines and the natural competitive process between rivals constantly vying to best one another to serve consumers.

Filed under: advertising, antitrust, business, economics, exclusionary conduct, google, Internet search, law and economics, monopolization, technology Tagged: Bias, Bing, Blekko, Competition law, Edelman, google, microsoft, Web search engine

By now everyone is probably aware of the “tracking” of certain cellphones (Sprint, iPhone, T-Mobile, AT&T perhaps others) by a company called Carrier IQ.  There are lots of discussions available; a good summary is on one of my favorite websites, Lifehacker;  also here from CNET. Apparently the program gathers lots of anonymous data mainly for the purpose of helping carriers improve their service. Nonetheless, there are lawsuits and calls for the FTC to investigate.

Aside from the fact that the data is used only to improve service, it is also useful to ask just what people are afraid of.  Clearly the phone companies already have access to SMS messages if they want it since these go through the phone system anyway.  Moreover, of course, no person would see the data even if it were somehow collected.  The fear is perhaps that “… marketers can use that data to sell you more stuff or send targeted ads…” (from the Lifehacker site) but even if so, so what?  If apps are using data to try to sell you stuff that they think that you want, what is the harm? If you do want it, then the app has done you a service.  If you don’t want it, then you don’t buy it.  Ads tailored to your behavior are likely to be more useful than ads randomly assigned.

The Lifehacker story does use phrases like “freak people out” and “scary” and “creepy.”  But except for the possibility of being sold stuff, the story never explains what is harmful about the behavior.  As I have said before, I think the basic problem is that people cannot understand the notion that something is known but no person knows it.  If some server somewhere knows where your phone has been, so what?

The end result of this episode will probably be somewhat worse phone service.

Filed under: advertising, consumer protection, privacy, regulation, technology, telecommunications, wireless

Geoff Manne’s blog on the FCC’s Staff Analysis and Findings (“Staff Report”) has inspired me to come up with a top ten list. The Staff Report relies heavily on concentration indices to make inferences about a carrier’s pricing power, even though direct evidence of pricing power is available (and points in the opposite direction). In this post, I have chosen ten lines from the Staff Report that reveal the weakness of the economic analysis and suggest a potential regulatory agenda. It is clear that the staff want T-Mobile’s spectrum to land in the hands of a suitor other than AT&T—the government apparently can allocate scare resources better than the market—and that the report’s authors define the public interest as locking AT&T’s spectrum holdings in place.

Read the full piece here.

Today’s Wall Street Journal has a long article-debate on privacy.  The strongest pro-privacy is Christopher Soghoian of the Open Society Institute.  He confuses commercial privacy with government privacy:

“The dirty secret of the Web is that the “free” content and services that consumers enjoy come with a hidden price: their own private data. Many of the major online advertising companies are not interested in the data that we knowingly and willingly share. Instead, these parasitic firms covertly track our web-browsing activities, search behavior and geolocation information. Once collected, this mountain of data is analyzed to build digital dossiers on millions of consumers, in some cases identifying us by name, gender, age as well as the medical conditions and political issues we have researched online.”

When asked “Why is that a problem” he replies

“Many of the dangers posed by digital dossiers do not occur regularly, but are incredibly destructive to people’s lives when they do. An unlucky few will be stalked, fired, surveilled, arrested, deported or even tortured, all as a result of the data kept about them by companies and governments. Much more common are the harms of identity theft or public embarrassment. Even when companies follow best practices—and few do—it is impossible to be completely secure.”

Note that “parasitic firms” are collecting the data which is then used for arrest, deportation, and torture.  A bit of a disconnect. Identity theft is a problem, but the risk is decreasing and the costs are almost always low.  Moreover, identity thieves are crooks, not firms.

What is particularly interesting about the article is the survey data reported.  It demonstrates peoples’ confusion about the issues.  92% of the adults surveyed  “Think that there should be a law that requires websites and advertising companies to delete all stored information about an individual” but between 32% and 47% would like websites to provide information of some sort (ads: 32%, discounts: 47%, or news: 40%) “tailored to their interests.”  But of course these numbers are totally inconsistent.  If websites cannot keep any information about an individual, then they cannot provide tailored information since there will be nothing on which to base the tailoring.  The relevant questions are tradeoff questions, but the reported survey does not address these.

Filed under: advertising, privacy