Way back in May, I cracked wise about the Federal Trade Commission’s (FTC) fictional “Bureau of Let’s Sue Meta,” noting that the commission’s proposal (really, an “order to show cause”) to modify its 2020 settlement of a consumer-protection matter with what had then been Facebook—in other words, a settlement modifying a 2012 settlement—was the FTC’s third enforcement action with Meta in the first half of 2023. That seemed like a lot, even if we ignored, say, Meta’s European and UK matters (see, e.g., here on the EU Digital Markets Act’s “gatekeeper” designations; here on the Norwegian data-protection authority; here and here on the Court of Justice of the European Union, and here on the UK Competition Appeal Tribunal).
Not wishing to show excessive dis-favoritism, the FTC’s November 2023 complaint against Amazon (here) is the third that the agency has brought against that firm in calendar year 2023 (see here and here for the others, and that’s not counting the commission’s February 2023 statement about Amazon’s acquisition of One Medical). Of course, both Meta and Amazon are large firms engaging in varied conduct, and no firms get a free pass on either the consumer-protection or competition side of Section 5 of the FTC Act. But with that said, this, too, seems a lot. Whereas the Meta onslaught entailed two antitrust actions and one consumer-protection matter, Amazon faces one antitrust “monopoly maintenance” complaint and two on the consumer-protection side.
On the competition side, Amazon has been in FTC Chair Lina Khan’s cross-hairs since, at least, the 2017 publication of her much-discussed student note in the Yale Law Journal, “Amazon’s Antitrust Paradox” (which is not to say that she’s pre-judged any Amazon matters, or that a reasonable person might suspect as much . . . although, I mean . . . right).
All of this windup about the FTC, Meta, and Amazon brings me to—well, bear with me—the U.S. Justice Department (DOJ) and Google, and the very recently concluded trial of the DOJ’s “monopoly maintenance” case. The complaint was filed in January 2020 in U.S. District Court for the District of Columbia, and Judge Amit Mehta has scheduled closing arguments for May 2024, so it ain’t over until it’s over. In the meantime, there’s a Truth on the Market symposium on “The Google Lawsuits” that provides useful discussion of various aspects of the DOJ’s case (among others). There’s also a useful “tl;dr” explainer by Sam Bowman and Geoff Manne (here). Greg Werden—former senior antitrust counsel at the DOJ Antitrust Division—blogged about it here. I’ve also blogged about it and opined here that, based on the public evidence presented at trial, the DOJ hasn’t made its case. That’s the tip of the iceberg. It has, to a first approximation, been in all the papers.
In case you’re not yet sated, I thought I’d focus on one specific line of argument in the Google antitrust trial that echoes one in the FTC’s “dark patterns” consumer-protection case against Amazon. It has to do with switching costs. As I and everyone else have noted, at issue in the Google case are two sets of agreements under which Google is the default search engine on various browsers and cell phones. Default status means what it sounds like: Google is pre-loaded and ready to roll “out of the box.” It doesn’t mean that consumers cannot use other search engines, or that they cannot alter their settings so that alternative search engines (and/or alternative browsers) become their defaults. It simply means that they have to take affirmative steps to suspend or change the Google default.
Similarly, the FTC’s “dark patterns” case against Amazon alleged, first, that Amazon somehow tricked consumers into registering with Prime and, darkly, that Amazon made it unduly difficult for consumers to cancel Prime. (I’m here; Manne is here, and here with Lazar Radic; former FTC General Counsel Alden Abbott says that the FTC’s complaint is “Perhaps the Greatest Affront to Consumer and Producer Welfare in Antitrust History” here).
Neither switching cost allegation struck me as convincing. I use Google often, but I’ve used other search engines too; and I’ve gone through the steps of changing defaults back and forth, just for giggles. I haven’t canceled Prime (I don’t want to), but I’ve checked out the various screens required, and cancellation doesn’t seem all that onerous either. Really. That’s me, but that’s not just me. The FTC complaint itself alleges that Prime cancellation required six clicks of a computer mouse (or substitute) prior to streamlining by Amazon; and it’s easier than that now. Six clicks, or three or four, are more than one or two, but something short of running a marathon or fighting a winter ground campaign in Russia. Or something and a half.
Before we ask about the antitrust implications, we might simply ask: How hard is it? For whom? And how do we know?
As I (and others) have noted, Android devices in Europe are required to offer a choice screen: no default. The consumer benefits of the mandate are unclear. Google’s share of general search on European mobile phones is reported to be about 96%. And while Microsoft preloads its Edge browser and Bing search engine as defaults on computers with the Windows operating system, Bing still lags way behind Google–way, way behind–on general search on U.S. desktops. Both observations suggest that it’s possible–at least possible–for consumers to switch to whatever search engine they prefer.
A recent Washington Post column stated—misleadingly, if not just plain wrongly—that Google spent billions “to hide this setting from you.” It’s not entirely clear what the column’s author, Geoffrey A. Fowler, is talking about. First, he says: “I’m talking about your search engine.” Then he suggests it’s the default setting itself, which isn’t hidden at all—that’s the point of the default: convenience. It’s right there, ready to roll, and conspicuously so (a design feature that serves a positive function, not an engineered impediment to the use of Bing).
It’s not as if the challenged agreements redesigned the settings functions on, e.g., Apple iPhones, to make it especially difficult (or even more difficult than it was) for consumers to change the default. That’s not even among the DOJ’s allegations. Rather, the complaint argues that it’s simply too darn hard for consumers to switch. Here’s the complaint:
Even where users can change the default, they rarely do. This leaves the preset default general search engine with de facto exclusivity.
“Even” is not in dispute. Users can change the default. What about the rest of it? Testimony for the government by Antonio Rangel, Bing [yep] Professor of Neuroscience, Behavioral Biology, and Economics at the California Institute of Technology, was widely reported (see, e.g., The New York Times here and Bloomberg here). Here’s some of Rangel’s testimony, as reported by Bloomberg:
Rangel said in testimony Wednesday and Thursday that his research on the prime placement of cereal boxes in stores was relevant to his assessment of search engine defaults. He found that getting prominent real estate on a web browser or mobile phone discourages people from switching to rival search engines. Consumers are reluctant to change behaviors that have hardened into habit, he said.
“Search engine defaults generate a sizable and robust bias towards the default,” Rangel said. “Defaults have a powerful impact on consumer decisions.” Often consumers don’t even realize they are making a choice by default and they don’t know how to change it, he said.
This has never been precisely my field, but in my misspent youth (ok, my late 30s), I did some work at the National Institutes of Health (NIH), in the Laboratory of Neuropsychology (LN), so I thought I’d take a look at the underlying research. On the one hand, it’s interesting research. On the other hand, it’s clear enough that Rangel and his colleagues didn’t actually study browser or search-engine defaults, or the degree to which default status would, or would not, impede switching.
Rather, there were studies of mechanisms of visual attention, with particular experiments displaying certain food choices to investigate—e.g., the influence of visual salience on the amount of attention devoted to a display. Generalizing findings from, e.g., cereal-box placement to the durability of search-engine defaults seems a stretch (or entirely speculative).
For example, experiments on visual saliency and consumer choice (e.g., here, here, and here) suggest that the visual properties of, e.g., packaging, can influence visual attention, which can bias choice in experiments where items were displayed in marked screen “shelves” (not actual grocery shelves), and eye tracking was measured. Rangel and colleagues observed that eliminating peripheral display of alternatives approximately doubled the attention biases—the amount of attention devoted to a displayed food item. The authors “suggest that individuals might be influenceable by settings in which only one item is shown at a time, such as e-commerce.”
Perhaps, but it’s not really a measurement of the extent to which, say, varied cereal displays in grocery stores (for which manufacturers might pay slotting fees) actually modulate the choices made by either marginal consumers or those with established preferences. Manipulating the relative amount of attention that research subjects pay to appetitive (desirable) and aversive food items, it was observed that appetitive items were 6-11% more likely to be chosen with long fixation (exposure)—with a similar but somewhat different bias for aversive items. What that says about the degree to which a given default setting for a browser or search engine might or might not be a barrier to switching is anyone’s guess. All of it is very context-dependent. For example, visual salience has an especially significant effect when consumers are (experimentally) forced to make very rapid choices. That’s interesting, and intuitive, but it constrains generalization across both experimental and real-world contexts.
At best, we have some careful research with findings that are consistent with the general observation that visual salience can have an effect on attention, and that attention can have an effect on choice. And so what? I don’t mean to denigrate the underlying research as behavioral research, but nobody ever disputed that making something prominent could have some bearing on choice. That’s what advertising is for. And while the government’s expert seems not to have studied the defaults in question at all, neither Google nor anybody else disputed that they were worth something, rather than nothing.
The evidentiary stretch seems endemic. There’s much of interest in behavioral economics, and some serious work seems to promise productive application to competition policy. Yet the intersection of behavioral findings and antitrust remains, if not necessarily the empty set, then hazy at best. That might change, but thus far the space seems to recall Gertrude Stein’s take on Oakland, California: there’s no there, there.
Switching costs could matter, and in a different context, there’s some precedent regarding switching costs and “lock-in.” In Eastman Kodak Co v. Image Technical Services Inc., the U.S. Supreme Court held that a defendant’s (Kodak’s) lack of market power in a primary-equipment market (photocopiers, etc.) does not preclude, as a matter of law, the possibility of their having and exploiting market power in derivative aftermarkets (parts and service, etc.). Kodak lost on the question of whether it was entitled to summary judgment, so Kodak’s refusal to sell its spare parts could, in theory, prove anticompetitive.
But Kodak-type lock-in allegations have been few, and have been difficult to prove. Carl Shapiro has explained why consumer harm in lock-in-type cases is both possible and unlikely. And jointly with David Teece, he has expanded on the analysis. In aftermarkets cases, high switching costs are a necessary, but not sufficient, condition for establishing the relevant market power. For example, firms that have made substantial investments in employee training and computer programming (sunk costs) might face substantial new training and programming costs in switching. Information costs could also be pertinent, if sufficiently high (and of a sort) to prevent customers from anticipating life-cycle aftermarket costs in their initial purchase decisions.
But Kodak-type lock-in is rightly hard to establish; and it seems a poor fit for either the Google antitrust case or the Amazon “dark patterns” case. Prime customers have many ways, and considerable experience, to investigate price and nonprice features of retail goods available from channels other than Prime; and apart from three, four, or even six clicks, it’s unclear that they have any switching costs at all, much less those requisite for lock-in.
And neither Kodak nor any other precedent says that switching costs need to be zero, or that a firm accused of exclusionary conduct needs to take affirmative steps to make them so. Pace Rangel’s research on attention and choice, there’s really nothing besides DOJ’s bald allegations to suggest the task of switching to a new search engine or browser is so onerous that Google’s default agreements (with other firms, such as Apple) are de facto exclusive agreements—that is, that they render switching practically impossible. Are they suggesting that consumers, having trained themselves to search via Google, need to make considerable investments in training before they can search via Bing or Duck-Duck-Go?
That’s it, really. There are many issues on the table, and many facts in dispute. But important to both the Amazon consumer-protection case and the Google antitrust case are allegations that switching costs are extremely high. The agencies can say so, but they haven’t yet shown it. And trotting out sophisticated neuroscientists who haven’t actually studied the switching in question seems a red herring. At best.