Too much of a google thing is a bad thing?

People use Google for one of two things: to search something online or to check if their internet connection is working. If you’re the first, you may or may not have seen products being displayed on the top bar when you search for an object, for example:

Google generates about 0.3 billion USD daily and most of that revenue comes from advertising as you may see. Google shopping is no stranger to the world of shopping (indicated by the symbol sponsored) but in June 2017, Google was asked to change its ways on google shopping by the EU Competition Commission and was slapped with the largest fine imposed on a single entity in EU Competition history– €2.4bn fine. There are several reasons as to why this is justified but others argue that it is disproportionate and harms product innovation. Google search engine is used by 90% of worldwide internet users and to prevent exploitation of customers and preserving competition, someone needs to start sending a wakeup call to dominant players that doing as they please will be heavily penalised.

Facts:

In 2010, the EU Competition Commission decided to open an investigation as to whether Google Shopping was a violation of competition rules. Google shopping allows consumers to compare products and prices online and find deals from online retailers of all types, including online shops of manufacturers, platforms (such as Amazon and eBay), and other re-sellers.

The opening of formal proceedings follows complaints by search service providers about the unfavourable treatment of their services in Google’s unpaid and sponsored search results coupled with an alleged preferential placement of Google’s own services. Google’s internet search engine provides for two types of results. These are unpaid search results, which are sometimes also referred to as “natural”, “organic” or “algorithmic” search results, and third party advertisements shown at the top and at the right-hand side of Google’s search results page.

In its media statement, the Commission mentioned that it will investigate whether Google has abused a dominant market position in online search by allegedly lowering the ranking of unpaid search results of competing services which are specialised in providing users with specific online content such as price comparisons and by according preferential placement to the results of its own vertical search services in order to shut out competing services.

After 7 years, the case has come with a €2.4bn fine.

The theory of harm

So what the Courts have told Google is that Google Shopping cannot favour its own product ads (where Google gets its revenue from) over those of other competitors. To illustrate what this means, a useful analogy may be to think what the Commission is doing is the equivalent of asking a newspaper company to carry/publish the advertising service of competing newspapers and in equal conditions whatever that means and without getting the revenue.

This might be shocking to some who don’t understand Competition Law but it is founded on the very rationale that its existence is to prevent “market exploitation”. Companies in a dominant position (such as Google with a whopping 90% market share in internet search engines in the EU) owe a “special obligation” to not distort and obtain an extra advantage from another market compared to other entities already existing in the secondary market.

Example: Windows was fined in the year the 2000s for having pre-installed the Windows Media Player into computers running the Windows system. Other media player companies lodged a complaint that this was an abuse of dominant position by using a pre-existing dominant position in one market (computer software market) to impute and create a dominant position in another market (the media player market). The Court agreed.

Some might argue that this is illogical because as consumers, we want convenience and reasonable price so by forcing Windows to remove the Windows Media Player (which it gave for free!!) isn’t it creating more trouble for consumers to have to search and download another media player? Also, what’s wrong with using what you’ve successfully created (through blood, sweat, tears and a lot of money) to promote something else you’re working on?

It is a little counterintuitive, but the argument on the flip side of the coin is that well, would you like it if one company dominated your whole life? It was to prevent a company from creating too many dominant positions that consumers are compelled if that dominant position became a monopoly position. Also, there are many considerations such as maintaining the level of competition, “too big to fail” and promoting consumer choices.

Back to Google, the EU Competition Commissioner, Margrethe Vestager, describes Google as obtaining an “illegal advantage by abusing its dominance in general Internet search” by promoting its own comparison shopping service in organic search results and demote rival comparison shopping services. The basis of the Commission’s decision is not spelt out on any relevant established anti-competitive practices such as constructive refusal to supply, price discrimination or tying but it was based on an overarching jurisprudence of competition law that dominant firms owe a “special obligation” as I’ve mentioned earlier.

Evidence of the foreclosure involved an in-depth analysis of Google Shopping’s effects on the market. It was found that as a result of Google’s illegal practices, traffic to Google’s comparison shopping service increased significantly, whilst rivals have suffered very substantial losses of traffic on a lasting basis.

  • Google’s comparison shopping service has increased its traffic 45-fold in the United Kingdom, 35-fold in Germany, 19-fold in France, 29-fold in the Netherlands, 17-fold in Spain and 14-fold in Italy.
  • The Commission found specific evidence of sudden drops of traffic to certain rival websites of 85% in the United Kingdom, up to 92% in Germany and 80% in France. These sudden drops could also not be explained by other factors. Some competitors have adapted and managed to recover some traffic but never in full.

Therefore, the theory of harm lies in that it was using its dominant platform (Google Search) to help establish another dominant position (Google Shopping) and this is supported with the exponential increase of traffic to Google Shopping and a fall in competitors. Also, it distorts reduces the level of relevancy in search results by displaying certain products over others.

Commentary:

I must admit first-hand that I am not a big fan of market liberalisation because it creates lesser competition and lowers competitive pressure. I am especially an opponent to the thought that “less is more” in the context of competition. For example, a self-sufficient country like China which holds one of the largest economies in the world has only a few companies running the bank by the billions/trillions: Tencent, Alibaba and Baidu to name a few. Competition is pretty dire there with only a handful of *very strong* players.

However, this decision is one where I am unconvinced of but understand the underlying rationale (and desperateness) of the decision. It’s a good decision but the explanation part leaves more to be desired.

Firstly, it stifles product innovation and improvement. The whole reason for the integration of the price comparison function into Google shopping is so that consumers like you and me need not individually check Amazon, Zalando, Asos, Missguided, Ebay to find the cheapest place to buy a shirt. A function which disadvantages rivals is not automatically anticompetitive practices but a balancing process needs to be taken place before it can be called an infringement of competition laws. Through improving and updating its price comparison function, Google was able to obtain a solid market standing which is not a “Google privilege” but maybe it offered something other price comparing websites don’t– the added convenience. But as seen in Windows/ Windows Media Player, added convenience isn’t always looked upon favourably.

Secondly, it’s quite unclear what kind of infringement this is. This is important because different tests are used for different infringements. At its closest, this appears to be a tying case such as Windows/ Windows Media Player but it wasn’t like consumers were prevented from using an alternate price comparison website and consumers didn’t need to buy Google Search to get Google shopping for free (welcome to the 21st century!). It is possible that this is a constructive refusal to supply case where if it can be proven ‘indispensability’ lead to a ‘margin squeeze’ and ‘a secondary market to be affected’. Bronner, Commercial Solvents, Magill and IMS Health all demonstrate this point (to a certain extent). The Commission notes in its Guidance that the existence of an obligation to supply – even for a fair remuneration – may undermine undertakings’ incentive to invest and innovate, which could be detrimental to consumers; and that, where a competitor can take a ‘free ride’ on the investment of the dominant firm, it is unlikely itself to invest and innovate, again to the detriment of consumers. So… What does it want Google to do exactly?

The part which baffled me the most is, as per the usual EU Competition Commission style, it did not tell Google how to remedy the problem but wants Google to figure out by itself on how it can be remedied and what commitments it plans to give. This is after 7 years of negotiation and various compromises being discussed hence it should be reasonable for the EUCC to at least give an idea of how to give a remedy the issue.

In other related thought, maybe EUCC has been overzealous with Google? It does have 2 cases pending with Google on it’s Adsense and Android workings…

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