FTC begins formal antitrust investigation into Google's business practices
Google was notified June 23 that federal regulators have begun an antitrust investigation into its business practices. The inquiry is expected to focus primarily on whether Google abuses its dominance of Internet search to extend its influences into other (lucrative) online markets.
Google handles two out of every three Internet searches in the U.S., and rivals have complained the company manipulates results to steer users to its own sites and services, rather than to competitors. The Senate Judiciary Committee’s antitrust committee is also looking into this.
Google, protesting innocence, maintains that most of the accusations of anticompetitive behavior come from competitors rather than users. Imagine that. Sounds like what Microsoft complained about back in the day, when Google was one of the organizations raising issues with the EU.
Google currently has about two thirds of all search engine advertising. That’s within the range of being considered a monopoly. However, although we have all been raised to believe monopoly=bad, there is nothing illegal about being a monopoly. What is illegal is using a large market share for nefarious activities, in an anti-competitive way to dominate that and related markets.
One of Google’s critics is Gary Reback, who gained quite a reputation during the Microsoft case. Similar to charges Reback raised in that case, he is claiming that markets such as search engines have become difficult to enter because of powerful network effects. Network effects exist when the value of a product is dependent upon how many people use the product. If the network effects make it difficult for creators of superior products (such as telephones, word processors, search engines, and browsers) to enter the market, the market tends to get stuck with inferior products; this is known as “lock-in” by economists. (For a great discussion of lock-in and network effects, see Winners, Losers, and Microsoft, by Stan Liebowitz and Steve Margolis [https://www.amazon.com/dp/0945999844]). While this book debunks the theory of lock-in, the theory is still held in high regard by antitrust agencies and critics of Microsoft and Google.
According to Google, it is still unclear exactly what the FTC’s concerns are, but network effects may well come up, considering Reback’s visibility.
The Microsoft case dragged on for years, with Microsoft eventually being declared a monopoly and using its influence in evil ways. The company was ordered to be split into three pieces, but on appeal managed to overturn the more egregious rulings of Judge Penfield Jackson. However, while Microsoft may have come out better than some anticipated in the U.S., the EU did not let it off so easily.
Now its Google’s turn. Only time will tell how much history may repeat itself.
