Archives For Herb Kohl

Some Much-Needed Antitrust Skepticism on Senate Letter Urging FTC Google Investigation

Geoffrey Manne —  20 December 2011

By Geoffrey Manne and Berin Szoka

[Cross posted at TechFreedom.org]

Back in September, the Senate Judiciary Committee’s Antitrust Subcommittee held a hearing on “The Power of Google: Serving Consumers or Threatening Competition?” Given the harsh questioning from the Subcommittee’s Chairman Herb Kohl (D-WI) and Ranking Member Mike Lee (R-UT), no one should have been surprised by the letter they sent yesterday to the Federal Trade Commission asking for a “thorough investigation” of the company. At least this time the danger is somewhat limited: by calling for the FTC to investigate Google, the senators are thus urging the agency to do . . . exactly what it’s already doing.

So one must wonder about the real aim of the letter. Unfortunately, the goal does not appear to be to offer an objective appraisal of the complex issues intended to be addressed at the hearing. That’s disappointing (though hardly surprising) and underscores what we noted at the time of the hearing: There’s something backward about seeing a company hauled before a hostile congressional panel and asked to defend itself, rather than its self-appointed prosecutors being asked to defend their case.

Senators Kohl and Lee insist that they take no position on the legality of Google’s actions, but their lopsided characterization of the issues in the letter—and the fact that the FTC is already doing what they purport to desire as the sole outcome of the letter!—leaves little room for doubt about their aim: to put political pressure on the FTC not merely to investigate, but to reach a particular conclusion and bring a case in court (or simply to ratchet up public pressure from its bully pulpit).

The five page letter concludes with, literally, three sentences presenting Google’s case, one of which reads, in its entirety, “Google strongly denies the arguments of its critics.” The derision is palpable—as if only a craven monopolist would deign to actually deny the iron-clad arguments of Google’s competitors so painstakingly reproduced by Senators Kohl and Lee in the preceding four pages. This is neither rigorous analysis nor objective reporting on the contents of the Senate’s hearing.

While we worry about particularly successful companies being singled out for punishment, we hold no brief for Google in this debate. Instead, in all our writings, we’ve tried to present a consistently skeptical view about a worrisome trend in antitrust enforcement in high tech markets: error-prone and costly intervention in markets that are ill-understood and fast-moving, to the great detriment of consumers and progress generally. Although our institutions have received financial support from Google among a range of other companies, organizations and individuals, our work is focused on this broad mission; we have no obligation or intention to support any company simply because it finds value in supporting our mission.

We’ve defended (and one of us has even worked for) Microsoft in the past, and just yesterday, we lamented the fact that the Obama Justice Department and the FCC have effectively blocked Google’s arch-rival, AT&T, from buying T-Mobile. Rather than defend any particular company, our goal, to paraphrase Hayek, is to “demonstrate to [regulators] how little they really know about what they imagine they can design”—lest they undermine how competition actually works in the name of defending outdated models of how they think it should work. Unfortunately, the letter from Senators Kohl and Lee does nothing to assuage our concern and suggests instead that crass politics, rather than sensible economics, could determine the outcome of cases like this one—if not in a court of law, then in the court of public opinion and extra-legal intimidation.

To begin with, the letter asserts that “Google faces competition from only one general search engine, Bing,” suggesting that only Bing (and it, only ineffectively) could keep Google in check. In essence, the Senators are prejudging an essential question on which any case against Google would turn: market definition. But why would the market not include other tools for information retrieval? Is it not at least worth mentioning that more and more Internet users are finding information and spending time on social networks like Facebook and Twitter, while more and more advertisers are spending their money on these Google competitors? Isn’t it clear that search itself is evolving from “ten blue links” into something more social, multi-faceted and interactive?

In a remarkable leap, the senators then identify the specific alleged abuse that Google’s alleged market power leads to: search bias. That’s remarkable because, other than the breathless claims of disgruntled competitors (given plenty of air time at the September hearing), there is actually no evidence that search bias is, in fact, harmful to consumers—which is what antitrust is concerned with. (Read both sides of this debate in TechFreedom’s free ebook, The Next Digital Decade: Essays on the Future of the Internet.)

As our colleague, Josh Wright, has thoroughly demonstrated, this “own-content” bias is actually an infrequent phenomenon and is simply not consistent with an actionable claim of anticompetitive foreclosure. Moreover, among search engines, Google references its own content far less frequently than does Bing (which favors Microsoft content in the first search result when no other search engine does so more than twice as often as Google favors its own content).

Of course, none of this is even hinted at in the Senators’ letter, which seems intended to condemn Google for “preferencing” its own content (under the pretense of withholding judgment). It’s a little like condemning Target for deigning to use its trucks to supply inventory only to its own stores instead of Wal-Mart’s, or, say, condemning a congressman for targeting earmarks for his own state or district. Earmark bias! Continue Reading…

In Antitrust & Competition, Apple, Facebook, Federal Trade Commission, Google, Justice Department, Law & Economics, Market Definition, Monopolization, Platforms, Regulation, Twitter , , , , , , , , , , , ,
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Correcting Herb Kohl (and Kayak and Bing Travel . . .) on Google/ITA

Geoffrey Manne —  2 December 2010

Today comes news that Senator Kohl has sent a letter to the DOJ urging “careful review” of the proposed Google/ITA merger.  Underlying his concerns (or rather the “concerns raised by a number of industry participants and consumer advocates that I believe warrant careful review”) is this:

Many of ITA’s customers believe that access to ITA’s technology is critical to competition in online air travel search because it cannot be matched by other players in the travel search industry.  They claim that ITA’s superior access to information and superior technology enables it to provide faster and better results to consumers.  As a result, some of these industry participants and independent experts fear that the current high level of competition among online travel agents and metasearch providers could be undermined if Google were to acquire ITA and start its own OTA or metasearch service.  If this were to happen, they argue, consumers would lose the benefits of a robustly competitive online air travel market.

For several reasons, these complaints are without merit and a challenge to the Google/ITA merger would be premature at best—and a costly mistake at worst.

The high-tech market is innovative and dynamic. Goods and services that were once inconceivable are now indispensable, and competition has improved the quality of technology while driving down its costs. But as the market continues to change, antitrust interventions are stuck using a static regulatory framework. As the government develops a strategy for regulating competition in the digital marketplace, it must tread carefully—excessive intervention will stifle innovation, harm consumers, and prevent growth.  And given the link between innovation and economic growth, the stakes of “getting it right” are high. The individual nature of every decision, however, makes errors in antitrust enforcement inevitable. Some conduct that is bad for competition will be allowed to go on while some conduct that is good for competition will be blocked by intervention.

But prosecuting pro-competitive conduct is almost certainly more costly than mistakenly allowing anticompetitive conduct because mechanisms are in place to mitigate the latter but not the former. The cost of erroneous intervention is the loss to consumers directly and a deterrent effect on innovation—for fear of intervention, companies may not take large risks. Meanwhile, allowing conduct to persist amidst uncertainty allows the potential benefits of conduct to materialize while maintaining checks against practices that are bad for consumers: both the competitive marketplace and future enforcers have the power to mitigate specific anticompetitive outcomes that may arise. Unfortunately, current antitrust enforcement—abetted by influential congressmen like Senator Kohl—is more, rather than less, aggressive against innovative companies in high-tech industries. This aggression threatens to stifle growth and deter future innovation in a market with incredible potential.

Google has become a primary target of this scrutiny, and the company’s proposed acquisition of ITA, a software company that compiles and processes travel data, is a good example of aggressive scrutiny threatening to stifle growth.

Google’s acquisition of ITA is a straightforward merger where one company has decided to purchase another outright (instead of merely purchasing its services through contract). There are good reasons for integration. Most notably, Google gets to exercise direct control over ITA’s talented engineers if it owns ITA—influence that it would not have if the company simply signed a contract with ITA. If Google is correct that it can manage ITA’s resources better than ITA’s current management, then integration makes sense and is valuable for consumers.

The primary concern raised over Google’s proposed acquisition of ITA is that acquisition would “leverage” Google’s alleged dominance into another market—the online travel search market—and permit Google to prevent its competitors from accessing ITA’s high-quality analysis of flights and fares.

There are a few problems with this.

  • First, ITA does not provide or own the underlying data (this comes from the airlines themselves); rather it works only to analyze and process it—processing that other companies can and do undertake.  It may have developed superior technology to engage in this processing, but that is precisely why it (and consumers) should not be penalized by its competitors’ efforts to hamstring it.  Remember—although most of the hand-wringing surrounding this deal concerns Google, it is first and foremost the innovative entrepreneurs at ITA who would be prevented from capitalizing on their success if the deal is stopped.
  • Second, it is hard to see why, under the facts as alleged by the deal’s naysayers, consumers would be worse off if Google owns ITA than if ITA stands on its own.  The claims seem to turn on ITA’s indispensability to the online travel industry.  But if ITA is so indispensable—if it possesses such market power, in other words—it’s hard to see how its incentives to capitalize on that market power would change simply by virtue of a change in its management.  Either ITA possesses market power and is already taking advantage of it (or else its managers are leaving money on the table and it most certainly should be taken over by another set of managers) or else it does not actually possess this market power and its combination with Google, even if Google were to keep all of ITA’s technology for itself, will do little to harm the rest of the industry as its competitors step up and step in to take its place.
  • Third and related to these is the simple repugnance of hamstringing successful entrepreneurs because of the exhortations of their competitors, and the implication that a successful company’s work product (like ITA’s “superior technology”) must be rendered widely-available, by government force if necessary.
  • Meanwhile, Google does not seem to have any interest in selling airline tickets or making airline reservations (just as it doesn’t sell the retail goods one can search for using its site). Instead, its interest is in providing its users easy access to airline flight and pricing data and giving online travel agencies the ability to bid on the sale of tickets to Google users looking to buy. The availability of this information via Google search will lower search costs for consumers and the expected bidding should increase competition and drive down travel costs for consumers.  It is easy to see why companies like Kayak and Bing Travel and Expedia and Travelocity might be unhappy about this, but far more difficult to see how their woes should be a problem for the antitrust enforcers (or Congress, for that matter).

The point is not that we know that Google—or any other high-tech company’s—conduct is pro-competitive, but rather that the very uncertainty surrounding it counsels caution, not aggression. As the technology, usage and market structure change, so do the strategies of the various businesses that build up around them. These new strategies present unknown and unprecedented challenges to regulators, and these new challenges call for a deferential approach. New conduct is not necessarily anticompetitive conduct, and if our antitrust regulation does not accept this, we all lose.

In Antitrust & Competition, Facebook, Google, Justice Department, Law & Economics, Mergers & Acquisitions, Monopolization, Platforms , , , , , , , ,
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