Saturday, August 29, 2015

Google finally responds to Europe's antitrust charges

EVER since Europe’s competition commissioner filed formal antitrust charges against Google’s shopping service on April 15th, it had been clear to observers that Google would not back down without a fight. After being granted an extension that nearly doubled the standard amount of time given to companies to reply, Google today issued its response to the commission. It is not subtle: “We believe that the [commission’s] preliminary conclusions are wrong as a matter of fact, law and economics,” writes Kent Walker, Google’s general counsel. (Disclosure: Eric Schmidt, executive chairman of Google’s parent company, Alphabet, sits on the board of The Economist's parent company.)  

Start with fact. Google says its online-shopping service has not damaged competitors, quite the reverse: web traffic (excluding paid referrals) to other price-comparison sites has increased by 227% over the past decade. However, it did not say by how much its own traffic, or internet traffic in general, increased during the same period. As for law, Google argues that the commission's proposed remedies, which include obliging its website to display ads "sourced and ranked" by rival companies, would only have a legal basis if it were a monopoly provider of essential supplies such as gas or electricity. And as regards economics, Google says the commission fails to grasp how the market works. "Economic data spanning more than a decade, an array of documents, and statements from complainants all confirm that product search is robustly competitive," it says. 


Google has long argued that competition is just a click away. This is true but somewhat disingenuous: the more users a dominant firm has, the more data it collects, and the more it can improve its service, allowing it to extend its lead over rivals. However, Google says that the commission's solution amounts, in effect, to making it freeze its innovation even as its rivals continue to improve their products. If so, this might be good news for its competitors but it is unclear what benefit it would bring for consumers.

When the commission started its investigation in 2010, Google was the only game in town. At the time it seemed inconceivable that a startup might be able to compete with the web giant. Yet the rise of the mobile internet has allowed a thousand competitors to rise, each targeting a different aspect of Google’s sprawling empire. Citymapper, for example, has begun to draw commuters away from Google Maps. 

The parties to the commission's case cannot agree even on how to define the online-shopping market, and other fundamental questions. This will ensure that the legal arguments will go on and on: the chances of a settlement or some other speedy solution now look remote. And this case is just the beginning. The commission is also looking at Android, Google’s mobile operating system, as well as myriad other services, including image search. All this will keep Brussels’ lawyers, journalists and lobbyists busy for years. In comparison, the commission’s case against Microsoft and its bundling of Internet Explorer, which dragged on for over a decade, may one day seem almost straightforward.

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