Editor’s Note: This is the second post in an ACSblog debate on antitrust scrutiny of Google between Harvard Business School Professor Benjamin G. Edelman and George Mason University School of Law Professor Joshua D. Wright. This online debate follows a recent U.S. Senate hearing on whether Google’s business practices “serve consumers” or “threaten competition.”
By Joshua D. Wright, Professor of Law, George Mason University School of Law
The theoretical antitrust case against Google reflects a troubling disconnect between the state of our technology and the state of our antitrust economics. Google’s is a 2011 high tech market being condemned by 1960s economics. Of primary concern (although there are a lot of things to be concerned about, and my paper with Geoffrey Manne, “If Search Neutrality Is the Answer, What’s the Question?,” canvasses the problems in much more detail) is the treatment of so-called search bias (whereby Google’s ownership and alleged preference for its own content relative to rivals’ is claimed to be anticompetitive) and the outsized importance given to complaints by competitors and individual web pages rather than consumer welfare in condemning this bias.
The recent political theater in the Senate’s hearings on Google displayed these problems prominently, with the first half of the hearing dedicated to Senators questioning Google’s Eric Schmidt about search bias and the second half dedicated to testimony from and about competitors and individual websites allegedly harmed by Google. Very little, if any, attention was paid to the underlying economics of search technology, consumer preferences, and the ultimate impact of differentiation in search rankings upon consumers.
So what is the alleged problem? Well, in the first place, the claim is that there is bias. Proving that bias exists -- that Google favors its own maps over MapQuest’s, for example -- would be a necessary precondition for proving that the conduct causes anticompetitive harm, but let us be clear that the existence of bias alone is not sufficient to show competitive harm, nor is it even particularly interesting, at least viewed through the lens of modern antitrust economics.
In fact, economists have known for a very long time that favoring one’s own content -- a form of “vertical” arrangement whereby the firm produces (and favors) both a product and one of its inputs -- is generally procompetitive. Vertically integrated firms may “bias” their own content in ways that increase output, just as other firms may do so by arrangement with others. Economists since Nobel Laureate Ronald Coase have known -- and have been reminded by Klein, Crawford & Alchian, as well as Nobel Laureate Oliver Williamson and many others -- that firms may achieve by contract anything they could do within the boundaries of the firm. The point is that, in the economics literature, it is well known that self-promotion in a vertical relationship can be either efficient or anticompetitive depending on the circumstances of the situation. It is never presumptively problematic. In fact, the empirical literature suggests that such relationships are almost always procompetitive and that restrictions imposed upon the abilities of firms to enter them generally reduce consumer welfare. Procompetitive vertical integration is the rule; the rare exception (and the exception relevant to antitrust analysis) is the use of vertical arrangements to harm not just individual competitors, but competition, thus reducing consumer welfare.