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September 2012 Policy Study, Number 12-10

   

The Federal Trade Commission’s Investigation of Google

   

The Monopolization Claim

   

 

The monopolization type claim is grounded in the idea that a monopolist (or a firm with a “dominant” position) can raise, and has raised, its prices above the economically efficient price — the price that would be charged if there were competition. When that happens, consumer welfare is said not to be maximized because the consumer has to spend “too much” on the product produced by the monopolist. The price of a good produced in a competitive market would be lower than the price charged by a monopolist, which means the consumer would have money left over to buy something else. Hence his welfare would be increased — “maximized.”

 

The problem with a claim based on normal monopolization theory, of course, is that Google hasn’t raised the prices it charges its users for search because . . . Google doesn’t charge its users anything for search.

 

Another problem with describing Google as dominant simply because it has roughly two-thirds of the general search business is that Internet users can, and do, navigate to a variety of other search websites without using Google. For example, only 12 percent of Expedia’s traffic and 10 percent of Travelocity’s and Priceline’s traffic originates on Google.[6] Consumers tend to be more skillful at negotiating the Internet than government regulators give them credit for.

 

That means that the only possible monopolization claim against Google would be that Google is an “essential facility” and therefore is required to behave in a certain way — i.e., to act as a provider of traffic for other websites — and that it is not behaving in that way.

 

That claim has no merit. Google is not an essential facility — and the “essential facilities” doctrine is of doubtful validity anyway. Its origin is often traced to a railroad case decided by the Supreme Court in 1912, when competition, and competition laws, were not well understood. Recently, Justice Antonin Scalia expressed skepticism with the idea that the antitrust laws impose any duty to share, which is what the essential facilities doctrine requires.[7]

 

Courts cite four elements as necessary for an essential facility’s claim: (1) control of the essential facility by a monopolist; (2) a competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility.[8]

 

The first three elements are fairly easily disposed of in the case of Google, making the fourth element irrelevant.

 

1. Google is not a monopolist. Detractors claim that it has market power in the “general search market.” But it is highly doubtful that that is a distinct market at all, given the numerous ways in which consumers find information from general search to specialized sites to mobile applications. And even if that were the proper market, the space that Google operates in is, like many high-tech markets, in great flux with new competitors entering and other competitors repositioning (think Apple getting into search with Siri).

 

2. Even if Google were a monopolist, not only are Google’s competitors not unable practically or reasonably to duplicate Google’s service; they are trying and succeeding in doing precisely that. After all, Microsoft was able to launch its own general search engine; Apple has aggressively moved into providing users with answers to their questions with Siri; and new specialized sites for certain types of queries pop up all the time (and successfully go public, as was the case with Yelp and Kayak).

 

3. And even if Google were a monopolist, and even if its competitors were unable to duplicate Google’s service, Google is not denying them use of its services. What “denial of use” could mean in the case of Google’s services is unclear, but it is clear that charging a competitor a fee for a service, as opposed to letting him use that service for free, does not constitute denial of use. Any firm that is willing to pay Google’s fee can use its advertising services. Google’s advertising system is, as the company puts it, an “auction-based advertising system, which takes into account relevance and bids, [and] is designed to provide a level playing field on which placement is not automatically awarded to the highest bidder.” No company is entitled to unlimited free promotion in Google’s natural search results — and that is exactly what many of the complainants in this case are demanding as their right.

 

   

 

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