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Google, Antitrust, and First Principles

I’ve read with interest over the last few days the commentary on Microsoft’s filing of a formal complaint with the EU, Microsoft’s defense of its actions, and the various stories around the web.  Geoff and Paul appropriately focus on the error-cost concerns associated with intervention in high-tech markets; Paul also emphasizes the ironies associated with Microsoft’s new status as antitrust complainant.  There will be ample time to discuss the substantive merits of these complaints as they develop.  But I wanted to make two points in this post that I think haven’t received much attention.

The first combines Geoff and Paul’s concerns.  I do not find it particularly interesting that Microsoft has taken this role.  In fact, these developments have been a long time coming.  Competitors frequently attempt to induce regulators to intervene against rivals.  The fact that Microsoft is the competitor certainly is ironic, but it is also expected.  The real lesson about Microsoft’s involvement in this suit is what inferences we should make about antitrust policy in high-tech markets given Microsoft’s quick decline from the alleged dominant and entrenched monopolist that was the focus of the DOJ enforcement action to its current status as rival seeking to employ the antitrust agencies to weaken its rival.  How quickly things change.  Indeed, that is precisely the point.  Dynamic competition, innovation, and quick moving industries do not mean that antitrust rules should never apply; however, these conditions should warrant caution in intervening in the name of consumers without firm evidence of consumer harm.

The second point is that the discussions I’ve read recently focus almost entirely on the question of whether Google favors its own content over that of rivals.  This is not the first time this type of argument has been made in antitrust.  Indeed, the argument is commonly made that whether in search or otherwise (e.g. vertical integration with YouTube), so-called “bias” or “discrimination” in favor of one’s own content is prima facie evidence of a competitive problem that will lead to consumer harm.  That is not so.  Neither economic theory nor empirical evidence support the assertion that, without more, vertical integration is a competitive.  Quite the contrary, the evidence suggests these arrangements are generally pro-consumer and efficient.  On a case-by-case analysis, the facts might suggest a competitive problem in any given case.  The facts, of course, matter.

Unfortunately, most of the discussion of “search bias” and other forms of vertical integration at issue here has focused on whether these arrangements are good or bad for Google’s rivals, not consumers.  First principles tell us that the competitive effects are what matters.  And there is indeed a reason to be skeptical of competitive harm here.  While some commentary in recent days has offered principles of antitrust analysis that are flat out wrong (see, e.g. here, the observation that the antitrust laws require “Microsoft, as a competitor, to have equal access”), we can rely on Professor Hovenkamp to re-focus the discussion on first principles:

“You do need to show consumer harm,” said Herbert Hovenkamp, an antitrust expert at the University of Iowa College of Law. “That becomes more difficult with search engines, where it is easy for consumers to switch to another search engine. That is different than in PC operating systems in the Microsoft case, where the technological lock-in was more obvious.”

Indeed.  It is important to note that this is case is in the EU, not the US.  While both jurisdictions emphasize the need to show consumer harm, the EU appears to be significantly more willing than US courts to infer harm to competition from harm to competitors.  I will leave more substantive analysis of the allegations here for another day as more facts develop.  But I suspect that the ultimate outcome here will turn on, in large part, precisely how faithful the EU analysis is to antitrust’s “first”-first principle: intervention requires evidence of consumer harm.

Filed under: antitrust, economics, error costs, exclusionary conduct, google, monopolization, technology