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September 2012 Policy Study, Number 12-10

   

The Federal Trade Commission’s Investigation of Google

   

Executive Summary

   

 

The news that the Federal Trade Commission (FTC) is investigating Google’s search business should worry all Internet users. The details of the Federal Trade Commission’s concerns about Google’s business practices are not public yet (that is standard practice), but the assumption is that the FTC believes that when Google displays the result of a search, it gives priority to results that relate to its own services — and that there is something wrong with that.

 

Understanding Google’s business model is important because it leads to an understanding of Google’s incentives. Unless Google can attract lots of searchers, it can’t charge its advertisers fees. If the Internet searcher doesn’t like the service Google provides, she can, with the effort of only a single click, try a different search engine. That is power, and it is a power that drives Google — and all the other search engines as well — to provide the best answer they can to the searcher’s question.

 

The Federal Trade Commission and several state Attorneys General may think something is wrong with Google’s products or practices. But are Google’s users dissatisfied? A spring 2012 IBOPE Zogby International poll found that people are indeed happy with the competitive environment.

 

If Internet users are satisfied with the competitive environment, why are the FTC and the Texas Attorney General investigating Google? They are investigating because Google’s competitors are unhappy. It is standard practice for companies to complain to the competition authorities (the Federal Trade Commission or the Antitrust Division of the Department of Justice, or a state attorney general) when they are being beaten at their game. They seek to use the government to run interference — to get government to harass their competitors. All too often government agencies are happy to oblige. And that’s exactly what’s happening here. The current investigation into Google’s practices has been loudly pushed by Google’s competitors, especially Microsoft.

 

But government should be skeptical of Google’s competitors’ claims. They do not make a case for government interference. What Google’s competitors claim is that Google’s listing its services or products ahead of its competitors’ is unfair because Google’s services or products are in fact inferior.

 

Setting aside the point that providing inferior information to searchers is not in Google’s advertising business’s interest, can it be that the Federal Trade Commission should get into the practice of evaluating the hundreds of thousands, or millions, of services and products offered on the Internet by Google and all its competitors in an effort to decide which are superior and which inferior? The idea is preposterous.

 

Even if the Federal Trade Commission were to find a violation of a law, what would it require Google to do? And would that be beneficial to Internet users? None of the suggested remedies would make searches more useful for Internet users. Consumers, apparently having a better sense of the value of free markets than government regulators, are overwhelmingly opposed to government interference in the search business.

 

In 2010, Google’s search results helped 9,790 Iowa businesses (advertisers and website publishers) receive economic value of $129,980,000. And all this only represents direct economic impact from three sections of Google’s business (Google Search and AdWords, AdSense, and Google Grants), and does not take into account the significant productivity increases and time and resources saved by individuals and small and large businesses from using Google search. For Iowa and Iowans, therefore, it is critical that the investigators reach the right result.

 

   

 

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