Editor’s Note: This is the first 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 Benjamin G. Edelman, Assistant Professor, Harvard Business School
The Senate Antitrust Subcommittee recently held a hearing to investigate persistent allegations of Google abusing its market power. Witnesses Jeff Katz (CEO of Nextag) and Jeremy Stoppelman (CEO of Yelp) demonstrated Google giving its own services an advantage other sites cannot match. For example, when a user searches for products for possible purchase, Google presents the user with Google Product Search links front-and-center, a premium placement no other product search service can obtain. Furthermore, Google Product Search shows prices and images, where competitors get just text links. Meanwhile, a user searching for restaurants, hotels, or other local merchants sees Google Places results with similar prominence, pushing other information services to locations users are unlikely to notice. In antitrust parlance, this is tying: A user who wants only Google Search, but not Google’s other services, will be disappointed. Instead, any user who wants Google Search is forced to receive Google’s other services too. Google’s approach also forecloses competition: Other sites cannot compete on their merits for a substantial portion of the market – consumers who use Google to find information – because Google has kept those consumers for itself.
But Google’s antitrust problems extend beyond tying Google’s ancillary services. Consider advertisers buying placements from Google. Google controls 75% of U.S. PC search traffic and more than 90% in many countries. As a result, advertisers are compelled to accept whatever terms Google chooses to impose. For example, an advertiser seeking placement through Google’s premium Search Network partners (like AOL and The New York Times) must also accept placement through the entire Google Search Network which includes all manner of typosquatting sites, adware, and pop-up ads, among other undesirable placements. While these bogus ad placements defraud and overcharge advertisers, Google’s U.S. Advertising Program Terms offer remarkable defenses: these terms purport to let Google place ads “on any content or property provided by Google ... or ... provided by a third party upon which Google places ads” (clause 2.(y)-(z)) -- a circular “definition” that sounds more like a Dr. Seuss tale than an official contract. Even Google's dispute resolution provisions are one-sided: An unsatisfied advertiser must complain to Google by “first class mail or air mail or overnight courier” with a copy by “confirmed facsimile.” (Despite my best efforts, I still don't know how a “confirmed” facsimile differs from a regular fax.) Meanwhile, Google may send messages to an advertiser merely by “sending an email to the email address specified in [the advertiser's] account” (clause 9). This hardly looks like a contract fairly negotiated among equals. Quite the contrary, Google has all the power and is using it to the utmost.