MDC Google The New Monopolist Case Study
In 1998 the U.S. Department of Justice (DOJ) filed a major antitrust lawsuit against Microsoft for abusing its monopoly power against Netscape in the browser wars. The protracted case ended with a partial government victory, though it scarcely hurt Microsoft’s uncontested monopoly power in the operating system business. At the time, it seemed clear that, in the information age, monopoly was becoming the norm rather than the exception. This normalization of monopoly power began with the emergence of companies like Intel, Cisco, and Microsoft, which controlled critical ubiquitous software and hardware platforms. Concentration of power often depends on network effects, whereby a product’s value increases with the number of people who use it. While the power of Intel and Microsoft has waned over the years, there are some new potential monopolists, including Google, Facebook, and Twitter.
Hence it is not surprising that the U.S. and European antitrust officials have shifted their attention away from Microsoft to Facebook and Google. Google dominates the search engine business with a 78% global market share, despite Microsoft’s late entry into the market several years ago with its Bing search engine. Antitrust laws such as the Sherman Act do not necessarily make it illegal to be a monopoly. However, it is illegal for a company to abuse its monopoly power, to leverage that power in order to tilt the playing field against new competitors or competitors in related businesses to which the monopolist wants to extend its scope. Accordingly, Microsoft was accused of “tying” in violation of the Sherman Act, that is, combining its Internet Explorer browser with Windows so that it could gain control of the browser market.
Google’s founders realized that the information delivered to users by a pattern of searches was the information needed to determine relevant ads. Search results could produce the ads that users were interested in seeing. Thus, while Google’s content and information is free, the company generates massive revenues from its innovative ad business Google’s algorithms dramatically transformed the advertising industry and ushered in the “Google era” along with the company’s online dominance. Like Microsoft, Google was in a position to use its expanding monopoly power in one business (search engines) to gain market share in other online industries. The company could simply adjust its secret search engine algorithms to favor its own products or services and direct users to its own websites instead of those operated by competitors. Concerned with Google’s growing power and reach, the Federal Trade Commission (FTC), working in conjunction with the Department of Justice (DOJ), launched an investigation into Google’s practices. The FTC considered whether Google has rigged its search ratings to promote links to its own shopping, local, travel, and finance sites over those of rivals. Google’s own sites frequently showed up on the top spots of its search results. Search for a restaurant like “Capital Grille” in Dallas and it’s likely that you’ll be directed to Google Places, the company’s local business information page. Critics of Google say that given its large market share, the company should treat its own content in the same way that it treats the contents of its competitors.
Google’s practices became more obvious when it entered the lucrative $110 billion online travel business in 2011. Google conspicuously placed its own travel service atop services such as Expedia, Orbitz Worldwide, Inc., and Priceline. A search such as “Memphis to Omaha” yields a “Google-powered interactive chart” of the least expensive airfares between these two cities, and a Google flight tool links exclusively to the airlines’ websites. Further down on the list are links to the top travel websites such as Expedia. Similarly, in the past, a user’s search for a hotel might return a dozen or so conspicuous links to online travel agencies and hotel operators. But more recently the search most prominently displayed a Google shopping services page with reviews, hotel photos, and an offer to book a room.
Google also favors its own comparison shopping services, known as Google Shopping. When someone initiates a product-related search such as “electric heater,” or “toaster,” Google returns ads above the organic search results that link directly to retailer sites (such as Target or Walmart) where those items can be purchased. The picture ads appear at the top of the first page under a title, such as “Shop for electric heaters on Google.” The businesses featured in those ads pay Google each time a user clicks on their ad. Other comparison shopping sites like Nextag operate in the same way, but those sites, which also have links to retailers, are often demoted in the search results, even though they may offer better deals. Google claims that it gives its own content preference because users prefer links that send them directly to a company’s website rather than a link to a comparison shopping site.
The FTC eventually concluded that while Google definitely favored its own shopping and travel services, its sincere desire to improve search results for consumers made it difficult to justify filing suit against the company. But Google hasn’t been so fortunate in Europe. In April 2015, the European Commission of the EU charged Google with abusing the power of its search engine to favor its own comparison shopping and travel services. Two years later, after negotiations failed, the European Union’s antitrust regulator fined Google $2.7 billion.
As Google increases its stake in online commerce, it will continue to struggle with its dual role in cyberspace as a search engine facilitating commerce and as a marketplace competitor. Google’s core business principles include “Don’t be evil.” Google has interpreted this principle to mean that it would always deliver unbiased and neutral organic search results.
But is Google faithful to its principles when it uses its power in the search engine market to gain advantage in other markets such as comparison shopping? Please give your answer to this question.
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