What’s really motivating the pursuit of Google?

Geoffrey Manne —  14 June 2011

I have an op-ed up at Main Justice on FTC Chairman Leibowitz’ recent comment in response the a question about the FTC’s investigation of Google that the FTC is looking for a “pure Section Five case.”  With Main Justice’s permission, the op-ed is re-printed here:

 

There’s been a lot of chatter around Washington about federal antitrust regulators’ interest in investigating Google, including stories about an apparent tug of war between agencies. But this interest may be motivated by expanding the agencies’ authority, rather than by any legitimate concern about Google’s behavior.

Last month in an interview with Global Competition Review, FTC Chairman Jon Leibowitz was asked whether the agency was “investigating the online search market” and he made this startling revelation:

“What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition. Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust. And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . . ”

“Section Five” refers to Section Five of the Federal Trade Commission Act. Exercising its antitrust authority, the FTC can directly enforce the Clayton Act but can enforce the Sherman Act only via the FTC Act, challenging as “unfair methods of competition” conduct that would otherwise violate the Sherman Act. Following Sherman Act jurisprudence, traditionally the FTC has interpreted Section Five to require demonstrable consumer harm to apply.

But more recently the commission—and especially Commissioners Rosch and Leibowitz—has been pursuing an interpretation of Section Five that would give the agency unprecedented and largely-unchecked authority. In particular, the definition of “unfair” competition wouldn’t be confined to the traditional measures–reduction in output or increase in price–but could expand to, well, just about whatever the agency deems improper.

Commissioner Rosch has claimed that Section Five could address conduct that has the effect of “reducing consumer choice”—an effect that a very few commentators support without requiring any evidence that the conduct actually reduces consumer welfare. Troublingly, “reducing consumer choice” seems to be a euphemism for “harm to competitors, not competition,” where the reduction in choice is the reduction of choice of competitors who may be put out of business by competitive behavior.

The U.S. has a long tradition of resisting enforcement based on harm to competitors without requiring a commensurate, strong showing of harm to consumers–an economically-sensible tradition aimed squarely at minimizing the likelihood of erroneous enforcement. The FTC’s invigorated interest in Section Five contemplates just such wrong-headed enforcement, however, to the inevitable detriment of the very consumers the agency is tasked with protecting.

In fact, the theoretical case against Google depends entirely on the ways it may have harmed certain competitors rather than on any evidence of actual harm to consumers (and in the face of ample evidence of significant consumer benefits).

Google has faced these claims at a number of levels. Many of the complaints against Google originate from Microsoft (Bing), Google’s largest competitor. Other sites have argued that that Google impairs the placement in its search results of certain competing websites, thereby reducing these sites’ ability easily to access Google’s users to advertise their competing products. Other sites that offer content like maps and videos complain that Google’s integration of these products into its search results has impaired their attractiveness to users.

In each of these cases, the problem is that the claimed harm to competitors does not demonstrably translate into harm to consumers.

For example, Google’s integration of maps into its search results unquestionably offers users an extremely helpful presentation of these results, particularly for users of mobile phones. That this integration might be harmful to MapQuest’s bottom line is not surprising—but nor is it a cause for concern if the harm flows from a strong consumer preference for Google’s improved, innovative product. The same is true of the other claims; harm to competitors is at least as consistent with pro-competitive as with anti-competitive conduct, and simply counting the number of firms offering competing choices to consumers is no way to infer actual consumer harm.

In the absence of evidence of Google’s harm to consumers, then, Leibowitz appears more interested in using Google as a tool in his and Rosch’s efforts to expand the FTC’s footprint. Advancing the commission’s “priority” to “find a pure Section Five case” seems to be more important than the question of whether Google is actually doing anything harmful.

When economic sense takes a back seat to political aggrandizement, we should worry about the effect on markets, innovation and the overall health of the economy.

Geoffrey Manne

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7 responses to What’s really motivating the pursuit of Google?

  1. 

    If the FTC’s motivation were expansion of Section 5, wouldn’t a more likely target be a small company without deep pockets and an army of lawyers, i.e., a company like N-Data?

  2. 

    It is time to end the FTC as an institution. If it were abolished, would anyone really miss it?

    • 
      Rafael Rivera 14 June 2011 at 9:55 am

      The problem, of course, with abolishing the FTC and hence providing the DOJ with all jurisdictional authority over matters implicating the antitrust laws is that enforcement will unquestionably become more politically basis-that is, without an institution insulated from political pressures, antitrust will be used to serve, for example, constituents of a party rather than overall consumer welfare. This is not to say, though, that current FTC enforcement does not exhibit some political bias in enforcement matters. But generally speaking I think that it pursues its obligations not only better informed of current economic thinking but also cognizant that it has no restrictions in investigating and pursing firms engaged in anticompetitive conduct at any time. This should be contrasted with President Obama’s desire to befriend firms on wall street before an election and hence the DOJ’s predicament in determining whether investigation is appropriate at such a time.
      As to Google, I couldn’t agree more with Professor Manne. Unlike other companies who reach monopoly status through combinations, Google’s rise to dominance was the result of internal growth. The U.S.’s business-friendly laws, strong intellectual property rights, and normative preference for long-term innovation over short-term static competition provided the framework under which Google’s services flourished. It appears, however, that once a a firm like Google reaches monopoly status, any conduct it undertakes will be judged exclusively through a static lens, instead of, for example, considering the dynamic effects a firm’s conduct might have on consumer welfare as well. Of similar concern is the idea that while antitrust law permits firms to compete against competitors, fringe competitors, or potential competitors, enforcement agencies are weary of monopolists competing against potential competitors by, for example, acquiring other companies-consider Google’s decision to acquire Ad-Mob, Double-Click, and ITA. Enforcers don’t understand that such decisions are predicated on nothing more than a desire to continually innovate given the Schumpertian waves of creative destruction present in information markets. Hopefully, the FTC will not only stop this investigation, but an end to this notion that consumer choice and hence the preservation of competitors is somehow connected to consumer welfare.

    • 

      Bert Foer would miss it.

      More importantly, most of Congress.

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