Google Finds Itself Under Increasing Antitrust Scrutiny

The August Wired has a nice article about the increased antitrust scrutiny that Google (NASDAQ: GOOG) is facing. (I would usually insert a link to the article, but I couldn’t find one online; sorry, but I am working from the dead-tree-and-ink version that the postman dropped off.)

Early on, the article notes some ironies of the current situation:

More than 15 years ago, federal regulators began making Microsoft the symbol of anticompetitive behavior in the tech industry. Now, a newly activist DOJ may try to do the same thing to Google.

It is an ironic position for the search giant to find itself in. [CEO Eric] Schmidt not only campaigned enthusiastically for the very Obama administration that appointed [DOJ antitrust chief Christine] Varney, but also was one of the most devoted opponents of Microsoft in the mid-’90s, eagerly helping the government build its case against the software firm.

A few weeks ago, I described some of the arguments that Google might use to defend itself. The Wired article elaborates on one of these: it’s fine for a company to be a monopoly if, as John Houseman used to say, they earn it. It then points to the other issues that may raise concerns:

In and of itself, Google’s size is not a legal problem. Varney herself has pointed out that, while Google may enjoy a monopoly in the search-ad business, the company acquired it legally by building better search products that competitors were simply unable to match. Lawyers and economists say that things get complicated, though, when Google moves beyond search and into Web services like online spreadsheets and video sites. Because its search and advertising algorithms are secret, there is no way for competitors or partners to know whether Google tweaks results to direct traffic to its own properties over theirs. Enter a street address into Google’s search engine, for instance, and Google Maps tops the results. Type “Britney Spears” and Google News comes up before People magazine or … If Google is using its search position to promote its other businesses, that could leave it open to charges of illegal bundling and leveraging–the same changes that Microsoft faced for packaging its browser onto the Windows desktop.

The article does have one major lapse, offering up one of the dumber antitrust arguments:

Google can use the surplus cash from its search business to subsidize the development of new, free products and services. That’s a frightening prospect for would-be competitors without such a robust revenue stream–potentially scary enough to discourage them from entering the market. The possible result: less innovation overall.

By that logic, Google could only avoid antitrust scrutiny by either (a) not making profits or (b) not innovating. That’s absurd.

As someone who has given brief thought to competing with Google, I can tell you that the company is daunting. But not because it’s so profitable (otherwise Apple, George Soros, and Alex Rodriguez would be just as concerning). No, the reasons Google frightens competitors are its servers, software, know-how, user base, brand, etc. Any rational person would think twice before trying to compete with a company that’s become a verb.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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