FTC Staff Report on Google: Much Ado About Nothing

Geoffrey Manne —  20 March 2015

The Wall Street Journal reported yesterday that the FTC Bureau of Competition staff report to the commissioners in the Google antitrust investigation recommended that the Commission approve an antitrust suit against the company.

While this is excellent fodder for a few hours of Twitter hysteria, it takes more than 140 characters to delve into the nuances of a 20-month federal investigation. And the bottom line is, frankly, pretty ho-hum.

As I said recently,

One of life’s unfortunate certainties, as predictable as death and taxes, is this: regulators regulate.

The Bureau of Competition staff is made up of professional lawyers — many of them litigators, whose existence is predicated on there being actual, you know, litigation. If you believe in human fallibility at all, you have to expect that, when they err, FTC staff errs on the side of too much, rather than too little, enforcement.

So is it shocking that the FTC staff might recommend that the Commission undertake what would undoubtedly have been one of the agency’s most significant antitrust cases? Hardly.

Nor is it surprising that the commissioners might not always agree with staff. In fact, staff recommendations are ignored all the time, for better or worse. Here are just a few examples: R.J Reynolds/Brown & Williamson merger, POM Wonderful , Home Shopping Network/QVC merger, cigarette advertising. No doubt there are many, many more.

Regardless, it also bears pointing out that the staff did not recommend the FTC bring suit on the central issue of search bias “because of the strong procompetitive justifications Google has set forth”:

Complainants allege that Google’s conduct is anticompetitive because if forecloses alternative search platforms that might operate to constrain Google’s dominance in search and search advertising. Although it is a close call, we do not recommend that the Commission issue a complaint against Google for this conduct.

But this caveat is enormous. To report this as the FTC staff recommending a case is seriously misleading. Here they are forbearing from bringing 99% of the case against Google, and recommending suit on the marginal 1% issues. It would be more accurate to say, “FTC staff recommends no case against Google, except on a couple of minor issues which will be immediately settled.”

And in fact it was on just these minor issues that Google agreed to voluntary commitments to curtail some conduct when the FTC announced it was not bringing suit against the company.

The Wall Street Journal quotes some other language from the staff report bolstering the conclusion that this is a complex market, the conduct at issue was ambiguous (at worst), and supporting the central recommendation not to sue:

We are faced with a set of facts that can most plausibly be accounted for by a narrative of mixed motives: one in which Google’s course of conduct was premised on its desire to innovate and to produce a high quality search product in the face of competition, blended with the desire to direct users to its own vertical offerings (instead of those of rivals) so as to increase its own revenues. Indeed, the evidence paints a complex portrait of a company working toward an overall goal of maintaining its market share by providing the best user experience, while simultaneously engaging in tactics that resulted in harm to many vertical competitors, and likely helped to entrench Google’s monopoly power over search and search advertising.

On a global level, the record will permit Google to show substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.

This is exactly when you want antitrust enforcers to forbear. Predicting anticompetitive effects is difficult, and conduct that could be problematic is simultaneously potentially vigorous competition.

That the staff concluded that some of what Google was doing “harmed competitors” isn’t surprising — there were lots of competitors parading through the FTC on a daily basis claiming Google harmed them. But antitrust is about protecting consumers, not competitors. Far more important is the staff finding of “substantial innovation, intense competition from Microsoft and others, and speculative long-run harm.”

Indeed, the combination of “substantial innovation,” “intense competition from Microsoft and others,” and “Google’s strong procompetitive justifications” suggests a well-functioning market. It similarly suggests an antitrust case that the FTC would likely have lost. The FTC’s litigators should probably be grateful that the commissioners had the good sense to vote to close the investigation.

Meanwhile, the Wall Street Journal also reports that the FTC’s Bureau of Economics simultaneously recommended that the Commission not bring suit at all against Google. It is not uncommon for the lawyers and the economists at the Commission to disagree. And as a general (though not inviolable) rule, we should be happy when the Commissioners side with the economists.

While the press, professional Google critics, and the company’s competitors may want to make this sound like a big deal, the actual facts of the case and a pretty simple error-cost analysis suggests that not bringing a case was the correct course.

Geoffrey Manne

Posts

http://laweconcenter.org/

4 responses to FTC Staff Report on Google: Much Ado About Nothing

  1. 
    @antitrustlemur 21 March 2015 at 8:29 am

    While I agree that there has been massive oversimplification and instrumentalization of FTC’s “unfortunate slip”, I’ve one small issue with your description of the staff’s incentives. They might have been overeager to litigate, but aren’t they the ones best positioned (knowledge asymmetry) to judge whether they had a fair chance to succeed?

    • 

      Yes and no, is the short answer. We address some of the incentives facing staff in the context of Section 5 data security cases here (but it is presumably applicable more broadly — with the caveat that the Commission has thus far (as far as we know) accepted 100% of staff recommendations in those cases). And Josh Wright’s paper with Angela Diveley (here) is also extremely useful in addressing this question. But regardless, you are right that staff should know best which cases are most likely to succeed. The most obvious problem with assuming that that means staff recommends “winning” cases, however, is that staff also cares about recommending cases it thinks/knows the commissioners will want to bring. And while the commissioners, too, prefer to win cases, it seems likely that they employ a more complex set of factors in deciding which cases to bring (and, of course, must drum up a majority vote to do so).

Trackbacks and Pingbacks:

  1. Federal Trade Commission won't pursue Google - Overlawyered - March 21, 2015

    […] Regulators wanna regulate, but leaving the search giant alone was the more rational antitrust course [Geoffrey Manne, Truth on the Market] […]

  2. Federal Trade Commission won’t pursue Google | Internet Tax Lawyers - March 21, 2015

    […] Regulators wanna regulate, but leaving the search giant alone was the more rational antitrust course [Geoffrey Manne, Truth on the Market] […]