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Our search neutrality paper has received some recent attention.  While the initial response from Gordon Crovitz in the Wall Street Journal was favorable, critics are now voicing their responses.  Although we appreciate FairSearch’s attempt to engage with our paper’s central claims, its response is really little more than an extended non-sequitur and fails to contribute to the debate meaningfully.

Unfortunately, FairSearch grossly misstates our arguments and, in the process, basic principles of antitrust law and economics.  Accordingly, we offer a brief reply to correct a few of the most critical flaws, point out several quotes in our paper that FairSearch must have overlooked when they were characterizing our argument, and set straight FairSearch’s various economic and legal misunderstandings.

We want to begin by restating the simple claims that our paper does—and does not—make.

Our fundamental argument is that claims that search discrimination is anticompetitive are properly treated skeptically because:  (1) discrimination (that is, presenting or ranking a search engine’s own or affiliated content more prevalently than its rivals’ in response to search queries) arises from vertical integration in the search engine market (i.e., Google responds to a query by providing not only “10 blue links” but also perhaps a map or video created Google or previously organized on a Google-affiliated site (YouTube, e.g.)); (2) both economic theory and evidence demonstrate that such integration is generally pro-competitive; and (3) in Google’s particular market, evidence of intense competition and constant innovation abounds, while evidence of harm to consumers is entirely absent.  In other words, it is much more likely than not that search discrimination is pro-competitive rather than anticompetitive, and doctrinal error cost concerns accordingly counsel great hesitation in any antitrust intervention, administrative or judicial.  As we will discuss, these are claims that FairSearch’s lawyers are quite familiar with.

FairSearch, however, grossly mischaracterizes these basic points, asserting instead that we claim

 “that even if Google does [manipulate its search results], this should be immune from antitrust enforcement due to the difficulty of identifying ‘bias’ and the risks of regulating benign conduct.”

This statement is either intentionally deceptive or betrays a shocking misunderstanding of our central claim for at least two reasons: (1) we never advocate for complete antitrust immunity, and (2) it trivializes the very real—and universally-accepted–difficulty of distinguishing between pro- and anticompetitive conduct.

First, we acknowledge the obvious point that as a theoretical matter discrimination can amount to an antitrust violation in some cases under certain specific circumstances—not the least important of which is proof of actual competitive harm.  To quote ourselves:

The key question is whether such a bias benefits consumers or inflicts competitive harm.  Economic theory has long understood the competitive benefits of such vertical integration; modern economic theory also teaches that, under some conditions, vertical integration and contractual arrangements can create a potential for competitive harm that must be weighed against those benefits . . . .  From a policy perspective, the issue is whether some sort of ex ante blanket prohibition or restriction on vertical integration is appropriate instead of an ex post, fact-intensive evaluation on a case-by-case basis, such as under antitrust law. (Manne and Wright, 2011) (emphasis added).

This is not much of a concession.  While FairSearch tries to move the goalposts by focusing on a straw man proposition that search bias is categorically immune from antitrust scrutiny, this sleight of hand doesn’t accomplish much and reveals what FairSearch is missing.   After all, consider that almost every single form of business conduct can be an antitrust violation under some set of conditions!  The antitrust laws apply in principle to (that is, do not categorically make immune) horizontal mergers, vertical mergers, long-term contracts, short-term contracts, exclusive dealing, partial exclusive dealing, burning down a rival’s factory, dealing with rivals, refusing to dealing with rivals, boycotts, tying contracts, overlapping boards, and all manner of pricing practices.  Indeed, it is hard to find categories of business conduct that are outright immune from the antitrust laws.  So—we agree:  “Search bias” can conceivably be anticompetitive.  Unfortunately for FairSearch, we never said otherwise and it’s not a very interesting point to discuss.

With that point firmly established, one can return focus to the topic FairSearch painstakingly avoids throughout its response and on which we think the issue really does (and should) turn: Where’s the proof of consumer harm?

Continue Reading…

No surprise here.  The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation.  Amit Singhal of Google acknowledged the FTC subpoenas at the Google Public Policy Blog:

At Google, we’ve always focused on putting the user first. We aim to provide relevant answers as quickly as possible—and our product innovation and engineering talent have delivered results that users seem to like, in a world where the competition is only one click away. Still, we recognize that our success has led to greater scrutiny. Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business. We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services.

It’s still unclear exactly what the FTC’s concerns are, but we’re clear about where we stand. Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow. No matter what you’re looking for—buying a movie ticket, finding the best burger nearby, or watching a royal wedding—we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video or a map.

It is too early to know the precise details of the FTC’s interest.  However, We’ve been discussing various aspects of the investigation here at TOTM for the last year.  Indeed, we’ve written two articles focused upon framing and evaluating a potential antitrust case against Google as well as the misguided attempts to use the antitrust laws to impose “search neutrality.”  We’ve also written a number of blog posts on Google and antitrust (see here for an archive).

For now, until more details become available, it strikes us that the following points should be emphasized:

  • For several reasons, the Federal Trade Commission’s investigation into Google’s business practices seems misguided from the perspective of competition policy directed toward protecting consumer welfare.  We hope and expect that the agency will conclude its investigation quickly and without any enforcement action against the company.  But it is important to note that this is merely an investigation–and at that, one that is not necessarily new.  More importantly, it is not a full-fledged enforcement action, much less a successful one; and although such investigations are extraordinarily costly for their targets, there is not yet (and there may never be) even any allegation of liability inherent in an investigation.
  • In any such case, the focus of concern must always be on consumer harm–not harm to certain competitors.  This is a well known antitrust maxim, but it is certainly appropriately applied here.  We are skeptical that consumer harm is present in this case, and our writings have explored this issue at length.  In brief, Google of today is not the Microsoft of 1998, and the issues and circumstances that gave rise to liability in the Microsoft case are uniformly absent here.
  • Related, most of the claims we have seen surrounding Google’s conduct here are of the vertical sort–where Google has incorporated (either by merger, business development or technological development) and developed new products or processes to evolve its basic search engine in novel ways by, for instance, offering results in the form of maps or videos, or integrating travel-related search results into its traditional offerings.  As we’ve written, these sorts of vertical activities are almost always pro-competitive, despite claims to the contrary by aggrieved competitors, and we should confront such claims with extreme skepticism.   Vertical claims instigated by rivals are historically viewed with skepticism in antitrust circles.  Failing to subject these claims to scrutiny focused on consumer welfare risks would be a mistake whose costs would be borne largely by consumers.
  • The fact that Google’s rivals–including most importantly Microsoft itself–are complaining about the company is, ironically, some of the very best evidence that Google’s practices are in fact pro-consumer and pro-competitive.  It is always problematic when competitors use the regulatory system to try to hamstring their rivals, and we should be extremely wary of claims arising from such conduct.
  • We are also troubled by statements emanating from FTC Commissioners suggesting that the agency intends to pursue this case as a so-called “Section 5” case rather than the more traditional “Section 2” case.  We will have to wait to see whether any complaint is actually brought and, if so, under what statutory authority, but a Section 5 case against Google raises serious concerns about effective and efficient antitrust enforcement.  Commissioner Rosch has claimed that Section 5 could address conduct that has the effect of “reducing consumer choice”—an effect that some 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 pro-competitive behavior.  This would portend an extremely problematic shift in direction for US antitrust law.

Together Geoffrey Manne and Joshua Wright are the authors of two articles on the antitrust law and economics of Google and search engines more broadly, Google and the Limits of Antitrust: The Case Against the Case Against Google, and If Search Neutrality Is the Answer, What’s the Question?

Manne is also the author of “The Problem of Search Engines as Essential Facilities: An Economic & Legal Assessment,” an essay debunking arguments for regulation of search engines to preserve so-called “search neutrality” in TechFreedom’s 2011 book, The Next Digital Decade: Essays on the Future of the Internet.

Among our recent blog posts on the topic are the following:

What’s Really Motivating the Pursuit of Google

Barnett v. Barnett on Antitrust

Sacrificing Consumer Welfare in the Search Bias Debate

Type I Errors in Action, Google Edition

Google, Antitrust, and First Principles

Microsoft Comes Full Circle

Search Bias and Antitrust

The EU Tightens the Noose Around Google

When Google’s Competitors Attack

Antitrust Karma, The Microsoft-Google Wars, and a Question for Rick Rule

DOJ Gears Up to Challenge the Proposed Google ITA Merger

[Cross posted at Technology Liberation Front]

We’ve been reading with interest a bit of an blog squabble between Tim Wu and Adam Thierer ( see here and here) set off by Professor Wu’s WSJ column: “In the Grip of the New Monopolists.”  Wu’s column makes some remarkable claims, and, like Adam, we find it extremely troubling.

Wu starts off with some serious teeth-gnashing concern over “The Internet Economy”:

The Internet has long been held up as a model for what the free market is supposed to look like—competition in its purest form. So why does it look increasingly like a Monopoly board? Most of the major sectors today are controlled by one dominant company or an oligopoly. Google “owns” search; Facebook, social networking; eBay rules auctions; Apple dominates online content delivery; Amazon, retail; and so on.

There are digital Kashmirs, disputed territories that remain anyone’s game, like digital publishing. But the dominions of major firms have enjoyed surprisingly secure borders over the last five years, their core markets secure. Microsoft’s Bing, launched last year by a giant with $40 billion in cash on hand, has captured a mere 3.25% of query volume (Google retains 83%). Still, no one expects Google Buzz to seriously encroach on Facebook’s market, or, for that matter, Skype to take over from Twitter. Though the border incursions do keep dominant firms on their toes, they have largely foundered as business ventures.

What struck us about Wu’s column was that there was not even a thin veil over the “big is bad” theme of the essay.  Holding aside complicated market definition questions about the markets in which Google, Twitter, Facebook, Apple, Amazon and others upon whom Wu focuses operate — that is, the question of whether these firms are actually “monopolists”  or even “near monopolists”–a question that Adam deals with masterfully in his response (in essence: There is a serious defect in an analysis of online markets in which Amazon and eBay are asserted to be non-competitors, monopolizing distinct sectors of commerce) — the most striking feature of Wu’s essay was the presumption that market concentration of this type leads to harm. Continue Reading…