Antitrust Experts Apply Chicago School Analysis to Google Antitrust Questions
Regulators “shouldn’t condemn the behavior of a dominant firm simply because it’s big,” said Gregory Sidak, law and economics professor at the Netherlands’ Tilburg University, at an American Enterprise Institute event Friday. He spoke about his recently released paper “What Does the Chicago School Teach About Internet Search and the Antitrust Treatment of Google” (http://xrl.us/bnsr5g). The paper, based on work commissioned by Google and written by Sidak and Robert Bork, the former U.S. Solicitor General and once a Supreme Court nominee, examines claims that Google violates antitrust laws through the lens of what’s known as the Chicago school of antitrust analysis. Based on a 1979 law review paper by Richard Posner, now a judge on the 7th U.S. Circuit Court of Appeals and still on the University of Chicago faculty, the Chicago school accepts that legitimately innovative and efficient firms will be rewarded with market success and market share, he said.
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There are no real barriers to entry in the search market, Sidak said. Google was not the first major search engine, he said, but instead displaced Yahoo, proving that “a second entrant can acquire sufficient cumulative scale,” despite Google’s competitors’ claims to the contrary. George Priest, an economics and law professor at Yale and former consultant to Google, agreed. Google has a “fragile dominance” that “has been gained on the merits” of its product, he said, and competition is only a click away.
There is no cost to switch to a competitor, Sidak said, even though Google uses previous search data to tailor results. “When I switch from Google to Bing, for example, Bing seems to intuit pretty quickly what I'm looking for,” he said of his personal experience. Still, he said, that’s “something you could try to measure.” Sidak, a former consultant to the Justice Department’s antitrust division, has also defended Google against claims that it would harm the market for orphan works if its now-scuttled Google Books settlement were approved.
Google’s market power comes from its superior product, panelists agreed. A firm’s ability to invest in innovation and differentiate its products from its competitors is “the secret sauce of the innovation economy,” said AEI visiting scholar Jeff Eisenach, who formerly served in senior roles at the FTC and the U.S. Office of Management and Budget. Randal Picker, who teaches antitrust law at the University of Chicago Law School and has a forthcoming paper on Google search, agreed: “What Google did is what you hope companies will do ... they went out and they built a great product."
Google’s biggest threat might be a company succeeding in an adjacent market, said Picker, who also defended the Google Books settlement before it was rejected by the U.S. District Court in New York. “That’s really a critical point for antitrust” law, he said. Even though Microsoft tied Windows Media Player to its operating system, he said, Apple managed to enter an adjacent market, and it now controls a large part of the digital music market. That could happen to Google in the realm of social sharing, Picker said, where “Google has not been very strong."
Google search should be thought of as a part of the media market, Picker said. “The best way to acquire that market power is to build a great product, to differentiate yourself from your competitors,” Picker said, comparing Google search to successful television programming. Firms then create profit from that market power by advertising, he said, which “degrades the product to make money.” Just like television networks have consumers sit through commercials, Google has users navigate around ads, he said. According to Picker, this parallel holds even though, as one member of the audience pointed out, ads on search pages are selected based on user input and should contribute in some way to the search experience. Ads are less valuable than organic results, Picker said, or else Google would just provide search users with “pages and pages of ads."
Google might run into trouble with its “hard-wired” products, Picker said, pointing searches to results including products like Google Maps and Zagat reviews. Google acquire Zagat last year. “In those situations, they seem to have much less advertising,” he said. With little explanation behind how those Google products are chosen for the search results page, there could be a potential for deceptive practices claims, Picker said, what he called “the cheap path for the FTC.” Should these kinds of claims come up, Picker pointed to the European Commission’s “browser ballot” as a potential remedy. The browser ballot, which the European Commission mandated for Microsoft devices as a part of its antitrust settlement with the company, asks users to pick a browser -- Internet Explorer or competitors -- when first running their operating system. There are no statistics on what has happened since the browser ballot was implemented, Picker said, and he is still questioning how well it would work if Google was forced to do something similar with its search product.