Case closed: Google wins (for now)

Dirk Auer —  19 November 2021 — 2 Comments

The European Commission and its supporters were quick to claim victory following last week’s long-awaited General Court of the European Union ruling in the Google Shopping case. It’s hard to fault them. The judgment is ostensibly an unmitigated win for the Commission, with the court upholding nearly every aspect of its decision. 

However, the broader picture is much less rosy for both the Commission and the plaintiffs. The General Court’s ruling notably provides strong support for maintaining the current remedy package, in which rivals can bid for shopping box placement. This makes the Commission’s earlier rejection of essentially the same remedy  in 2014 look increasingly frivolous. It also pours cold water on rivals’ hopes that it might be replaced with something more far-reaching.

More fundamentally, the online world continues to move further from the idealistic conception of an “open internet” that regulators remain determined to foist on consumers. Indeed, users consistently choose convenience over openness, thus rejecting the vision of online markets upon which both the Commission’s decision and the General Court’s ruling are premised. 

The Google Shopping case will ultimately prove to be both a pyrrhic victory and a monument to the pitfalls of myopic intervention in digital markets.

Google’s big remedy win

The main point of law addressed in the Google Shopping ruling concerns the distinction between self-preferencing and refusals to deal. Contrary to Google’s defense, the court ruled that self-preferencing can constitute a standalone abuse of Article 102 of the Treaty on the Functioning of the European Union (TFEU). The Commission was thus free to dispense with the stringent conditions laid out in the 1998 Bronner ruling

This undoubtedly represents an important victory for the Commission, as it will enable it to launch new proceedings against both Google and other online platforms. However, the ruling will also constrain the Commission’s available remedies, and rightly so.

The origins of the Google Shopping decision are enlightening. Several rivals sought improved access to the top of the Google Search page. The Commission was receptive to those calls, but faced important legal constraints. The natural solution would have been to frame its case as a refusal to deal, which would call for a remedy in which a dominant firm grants rivals access to its infrastructure (be it physical or virtual). But going down this path would notably have required the Commission to show that effective access was “indispensable” for rivals to compete (one of the so-called Bronner conditions)—something that was most likely not the case here. 

Sensing these difficulties, the Commission framed its case in terms of self-preferencing, surmising that this would entail a much softer legal test. The General Court’s ruling vindicates this assessment (at least barring a successful appeal by Google):

240    It must therefore be concluded that the Commission was not required to establish that the conditions set out in the judgment of 26 November 1998, Bronner (C‑7/97, EU:C:1998:569), were satisfied […]. [T]he practices at issue are an independent form of leveraging abuse which involve […] ‘active’ behaviour in the form of positive acts of discrimination in the treatment of the results of Google’s comparison shopping service, which are promoted within its general results pages, and the results of competing comparison shopping services, which are prone to being demoted.

This more expedient approach, however, entails significant limits that will undercut both the Commission and rivals’ future attempts to extract more far-reaching remedies from Google.

Because the underlying harm is no longer the denial of access, but rivals being treated less favorably, the available remedies are much narrower. Google must merely ensure that it does not treat itself more preferably than rivals, regardless whether those rivals ultimately access its infrastructure and manage to compete. The General Court says this much when it explains the theory of harm in the case at hand:

287. Conversely, even if the results from competing comparison shopping services would be particularly relevant for the internet user, they can never receive the same treatment as results from Google’s comparison shopping service, whether in terms of their positioning, since, owing to their inherent characteristics, they are prone to being demoted by the adjustment algorithms and the boxes are reserved for results from Google’s comparison shopping service, or in terms of their display, since rich characters and images are also reserved to Google’s comparison shopping service. […] they can never be shown in as visible and as eye-catching a way as the results displayed in Product Universals.

Regulation 1/2003 (Art. 7.1) ensures the European Commission can only impose remedies that are “proportionate to the infringement committed and necessary to bring the infringement effectively to an end.” This has obvious ramifications for the Google Shopping remedy.

Under the remedy accepted by the Commission, Google agreed to auction off access to the Google Shopping box. Google and rivals would thus compete on equal footing to display comparison shopping results.

Illustrations taken from Graf & Mostyn, 2020

Rivals and their consultants decried this outcome; and Margrethe Vestager intimated the commission might review the remedy package. Both camps essentially argued the remedy did not meaningfully boost traffic to rival comparison shopping services (CSSs), because those services were not winning the best auction slots:

All comparison shopping services other than Google’s are hidden in plain sight, on a tab behind Google’s default comparison shopping page. Traffic cannot get to them, but instead goes to Google and on to merchants. As a result, traffic to comparison shopping services has fallen since the remedy—worsening the original abuse.

Or, as Margrethe Vestager put it:

We may see a show of rivals in the shopping box. We may see a pickup when it comes to clicks for merchants. But we still do not see much traffic for viable competitors when it comes to shopping comparison

But these arguments are entirely beside the point. If the infringement had been framed as a refusal to supply, it might be relevant that rivals cannot access the shopping box at what is, for them,  cost-effective price. Because the infringement was framed in terms of self-preferencing, all that matters is whether Google treats itself equally.

I am not aware of a credible claim that this is not the case. At best, critics have suggested the auction mechanism favors Google because it essentially pays itself:

The auction mechanism operated by Google to determine the price paid for PLA clicks also disproportionately benefits Google. CSSs are discriminated against per clickthrough, as they are forced to cede most of their profit margin in order to successfully bid […] Google, contrary to rival CSSs, does not, in reality, have to incur the auction costs and bid away a great part of its profit margins.

But this reasoning completely omits Google’s opportunity costs. Imagine a hypothetical (and oversimplified) setting where retailers are willing to pay Google or rival CSSs 13 euros per click-through. Imagine further that rival CSSs can serve these clicks at a cost of 2 euros, compared to 3 euros for Google (excluding the auction fee). Google is less efficient in this hypothetical. In this setting, rivals should be willing to bid up to 11 euros per click (the difference between what they expect to earn and their other costs). Critics claim Google will accept to bid higher because the money it pays itself during the auction is not really a cost (it ultimately flows to Google’s pockets). That is clearly false. 

To understand this, readers need only consider Google’s point of view. On the one hand, it could pay itself 11 euros (and some tiny increment) to win the auction. Its revenue per click-through would be 10 euros (13 euros per click-through, minus its cost of 3 euros). On the other hand, it could underbid rivals by a tiny increment, ensuring they bid 11 euros. When its critics argue that Google has an advantage because it pays itself, they are ultimately claiming that 10 is larger than 11.

Google’s remedy could hardly be more neutral. If it wins more auction slots than rivals CSSs, the appropriate inference should be that it is simply more efficient. Nothing in the Commission’s decision or the General Court’s ruling precludes that outcome. In short, while Google has (for the time being, at least) lost its battle to appeal the Commission’s decision, the remedy package—the same it put forward way back in 2014—has never looked stronger.

Good news for whom?

The above is mostly good news for both Google and consumers, who will be relieved that the General Court’s ruling preserves Google’s ability to show specialized boxes (of which the shopping unit is but one example). But that should not mask the tremendous downsides of both the Commission’s case and the court’s ruling. 

The Commission and rivals’ misapprehensions surrounding the Google Shopping remedy, as well as the General Court’s strong stance against self-preferencing, are revealing of a broader misunderstanding about online markets that also permeates through other digital regulation initiatives like the Digital Markets Act and the American Choice and Innovation Act. 

Policymakers wrongly imply that platform neutrality is a good in and of itself. They assume incumbent platforms generally have an incentive to favor their own services, and that preventing them from doing so is beneficial to both rivals and consumers. Yet neither of these statements is correct.

Economic research suggests self-preferencing is only harmful in exceptional circumstances. That is true of the traditional literature on platform threats (here and here), where harm is premised on the notion that rivals will use the downstream market, ultimately, to compete with an upstream incumbent. It’s also true in more recent scholarship that compares dual mode platforms to pure marketplaces and resellers, where harm hinges on a platform being able to immediately imitate rivals’ offerings. Even this ignores the significant efficiencies that might simultaneously arise from self-preferencing and closed platforms, more broadly. In short, rules that categorically prohibit self-preferening by dominant platforms overshoot the mark, and the General Court’s Google Shopping ruling is a troubling development in that regard.

It is also naïve to think that prohibiting self-preferencing will automatically benefit rivals and consumers (as opposed to harming the latter and leaving the former no better off). If self-preferencing is not anticompetitive, then propping up inefficient firms will at best be a futile exercise in preserving failing businesses. At worst, it would impose significant burdens on consumers by destroying valuable synergies between the platform and its own downstream service.

Finally, if the past years teach us anything about online markets, it is that consumers place a much heavier premium on frictionless user interfaces than on open platforms. TikTok is arguably a much more “closed” experience than other sources of online entertainment, like YouTube or Reddit (i.e. users have less direct control over their experience). Yet many observers have pinned its success, among other things, on its highly intuitive and simple interface. The emergence of Vinted, a European pre-owned goods platform, is another example of competition through a frictionless user experience.

There is a significant risk that, by seeking to boost “choice,” intervention by competition regulators against self-preferencing will ultimately remove one of the benefits users value most. By increasing the information users need to process, there is a risk that non-discrimination remedies will merely add pain points to the underlying purchasing process. In short, while Google Shopping is nominally a victory for the Commission and rivals, it is also a testament to the futility and harmfulness of myopic competition intervention in digital markets. Consumer preferences cannot be changed by government fiat, nor can the fact that certain firms are more efficient than others (at least, not without creating significant harm in the process). It is time this simple conclusion made its way into European competition thinking.

Dirk Auer

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Dirk Auer is a research fellow the Liege Competition and Innovation Institute. He is currently finishing a PhD that focuses on the “Innovation Defense” in European competition law and US antitrust law. Prior to joining the LCII, Dirk completed LLMs at the University of Chicago Law School (2014) and at the University of Liège (2011). He also worked in the competition practices of two international law firms.

2 responses to Case closed: Google wins (for now)

  1. 
    Christian Hocepied 1 December 2021 at 6:19 am

    In a recent reply to a written question from a MEP https://www.europarl.europa.eu/doceo/document/E-9-2019-003869-ASW_EN.html
    the Commission says that “In June 2018, only one third of Shopping Units included at least one competitor, and around 6% of clicks in the Unit went to competitors. In November 2019, 81% of Shopping Units include at least one offer of a competitor, and 45.9% of clicks go to these competitors. The Commission takes good note of concerns in relation to Google’s compliance, which have been raised by a number of complainants, and assesses these on an ongoing basis.” The remedy accepted would thus work, at least in favour of some competitors (question is whether the Commission includeds merchand sites among the category ‘competitors’.

  2. 

    There seems to be a misunderstanding. The author argues that because the case is about “equal access” rather than “favouring”, Google granting rivals “access” to Shopping Units would have ended the abuse. Yet, this misses a crucial point: According to the Court, the access object are not Shopping Units (= Google’s own CSS on the SERP (327-340)), but the entire general results page: “what is at issue in the present case are the conditions of the supply by Google of its general search service by means of access to general results pages for competing CSS” (219, 243). Granting equal “access” to Shopping Units is far less than granting equal access to the entire general results page because the latter requires that competing CSS gain an equal opportunity to compile and service equivalent boxes on the results page. “At issue here is the more favourable treatment of Google’s [CSS] as a whole, which includes Shopping Units” (331). In any case, the Court found that the way Google grants access to its Shopping Units is not “equal treatment” as it turns rivals into customers of Google (see paras 330 et sub.). Thus, in effect the Court deprived Google’s compliance mechanism of any basis. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3965075

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