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The EU’s got it all wrong on Google

Summary:
By fining Google £2.1bn for giving special prominence to Google Shopping in shopping-related searches, European regulators have made exactly the same mistake that they and US regulators did when they fined Microsoft for bundling its Internet Explorer with Windows in the 1990s (a decision that even Lawrence Lessig, who led the first case, now says was wrong).The basic error is to assume that Google or Microsoft’s dominant position in the market is unchallengeable – that they are akin to ‘natural monopolies’ like, say, water or electricity companies, and can use their position to exploit consumers – and that instead of competition between platforms being able to take place, they must brute-force competition within those platforms. But Microsoft’s market dominance was much more vulnerable

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By fining Google £2.1bn for giving special prominence to Google Shopping in shopping-related searches, European regulators have made exactly the same mistake that they and US regulators did when they fined Microsoft for bundling its Internet Explorer with Windows in the 1990s (a decision that even Lawrence Lessig, who led the first case, now says was wrong).

The basic error is to assume that Google or Microsoft’s dominant position in the market is unchallengeable – that they are akin to ‘natural monopolies’ like, say, water or electricity companies, and can use their position to exploit consumers – and that instead of competition between platforms being able to take place, they must brute-force competition within those platforms. But Microsoft’s market dominance was much more vulnerable than it seemed, and normal pressures of competition and innovation were what did for Windows in the end, no regulators needed. Windows is now only the operating system for 14% of devices shipped, and Android is the most-used operating system for browsing the internet.

An analogy is mobile phones: if you assume people are locked into using some kind of Android phone, then the preeminence that Google gives to its own products looks like a big problem. But when you realise that there are alternatives to Android, like iPhones, competition within the platform begins to look less important than competition across platforms. 

And forcing within-platform competition might make the product worse – look at how vertically integrated iPhones are, which allows things like frequent software updates (something Android badly lacks), and how Google products (like the Pixel) have been moving towards that sort of model too. It also deprives the company of a revenue stream that makes investment in the free product, like search or Android, possible.

Finally, bundling or integrating price comparison tools might be good for users who are less tech-savvy and would normally go for a 'trusted' but more expensive retailer. If you don't realise that SkyScanner exists and would normally just go with BA every time, it could be very useful to get Google Flights right up top, showing that Ryanair does what you're looking for much more cheaply.

So it’s not even clear that prioritising Google Shopping results is bad for consumers – it may lead them to be more price-conscious and to shop around between merchants more. Even if it is – because it’s worse than some alternative price comparison site, for example – there is still no case for punishing Google for giving it special prominence. If Google Shopping is worse for consumers then it must be acting as a revenue raiser for Google, and a de facto way of charging for use of Google search (and other free Google products). 

If people can switch between platforms it doesn’t matter that much if, within a platform, there isn’t that much competition. Prioritising a particular shopping search engine is not akin to gouging water users with higher prices because there are alternatives to Google that users can switch to easily. If the overall user experience is made worse by Google Shopping being prioritised, then users will have the option of moving to a search engine like Bing which is perhaps less good as at search but better overall because it does not prioritise a bad shopping tool. Indeed Bing has specifically targeted Google Shopping, which they say is worse than their own tool, to get users to switch. And there is an incentive created for entrepreneurs and large existing rivals of Google like Facebook to create their own, rival platform.

Along with this broad point there are some specifics about this case that make it even weaker. It doesn’t take account of how people do online shopping: as well as search engines they also use things like Amazon and eBay, and they get advice about things from social sites like Facebook and Instagram. And bundling clearly doesn’t work that well for Google if the product isn’t that good – Google Flights gets special prominence if you search for flight information, and rivals like SkyScanner and Kayak are doing fine.

But the core issue here is whether we need to force competition within software platforms if competition exists between them. Just as Windows users moved to other operating systems (both on mobile with Android and iOS and desktop with Linux and Apple’s OS X), Google users have plenty of alternatives they can switch to if they think that Google’s bundling worsens the platform’s quality enough. Bundling has benefits as well as costs, because it pays for the free things Google does and allows for more streamlined use of software. Trying to stamp it out will end up hurting users in a misguided quest to help them.

Sam Bowman
Sam Bowman is Deputy Director of the Adam Smith Institute, Britain’s leading libertarian think tank, where he has worked since 2010. He is responsible for managing the Institute’s team on a daily basis, working on the ASI’s overall strategy, acting as a media spokesman for the Institute and writing and researching in his spare time.

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