Article published in The Wall Street Journal on November 5, 2009.
An antitrust backlash is hitting Google, after it supported the European Commission’s action against Microsoft. Italian authorities launched an investigation into Google in September and the search giant now finds itself the target of European antitrust policy, which has become a form of Russian roulette, with a price to be paid by innovative companies and, down the road, by consumers.
This is not happening by accident. Based on a static and unrealistic view of competition, European competition rules strike by definition at companies that, by dint of their efforts to innovate, succeed in capturing substantial market shares. It is thus hardly a surprise to see the high-tech sector in the antitrust spotlight.
Microsoft—after revolutionizing PC use with Windows—found itself ordered to pay heavy fines earlier this decade while its business model was hamstrung to the great benefit of its competitors, including Google.
Intel is currently facing the same fate, even with the microprocessor market being among the most competitive and cutthroat in the world. The fact that the microprocessor price index fell, according to the U. S. Bureau of Labor Statistics, by a year-over-year average of about 35% between 2002 and 2007 (the period covered by the European Commission ruling against Intel) did not carry much weight. So no surprise that Google—the leader in Web searches, with its search engine chosen by a great majority of Internet users—is now under attack.
Sparked by a complaint from the Italian Federation of Newspaper Publishers, the Mountain View, California-based company is suspected of having abused its « dominant position » in Web searches in Italy, where nearly 90% of market share goes to Google. Italian publishers complain that they are excluded from the Google search engine if they decide not to be part of Google News, which redirects Internet users free of charge to the content placed on line by participating newspapers.
The facts have not yet been established, and Google is denying the allegations. But suppose they are true. What is the argument for antitrust regulators intervening, and forcing the hand of a company that « dominates » its market, against publishers who may not have a choice?
Contrary to appearances, a guilty verdict against Google would actually hurt competition in the market, and would penalize consumers.
First, forcing the hand of a business partner has nothing to do with free competition. Italian publishers want to promote their own content on the Internet and attract advertising. Accordingly, they are in direct competition with Google. At the same time, they wish to benefit—giving nothing in return—from the possibility of the extra traffic that Google’s search engine provides. In short, they want to have their cake and eat it too. But if they don’t manage to get in on the market, it should not be the role of the public authorities to provide it for them.
Second, by focusing on market share, European antitrust policy ignores the competitive pressures actually exerted on the market. If the Italian publishers have services that truly provide added value to Internet users, and if Google refuses to list them, this obviously presents an opportunity for Google’s competitors.
Contrary to the misleading image that may be conveyed by the idea of market share—numbers that are not carved in stone and that change constantly—there does exist real competition in the search engine market. Close to 10 search engines currently exist in Italy. It is true that their market shares are currently far behind Google’s, but they should be delighted by the opportunity to increase their market shares if newspaper publishers came up with a worthwhile partnership that compensated the search engine for extra traffic, instead of trying to benefit coercively from Google.
Competition in the search market might have been more intense if this same antitrust policy had not, for years, been artificially handicapping a major market player, namely Microsoft. That company’s new search engine Bing—whose volume was reported to be up 7% between July and August in the U.S.—and Microsoft’s pact with Yahoo would doubtless have been agreed earlier. Had its time and resources not been spent addressing antitrust charges from the European Commission, Microsoft would certainly have launched its own search engine sooner, challenging Google more effectively. The partnership between Microsoft and Yahoo is, by the way, still awaiting a green light from antitrust authorities, adding uncertainty in terms of any future success.
Handicapping Google—after having done the same to Microsoft—does not work in favor either of competition or of Internet users. It is obvious that, if the antitrust authorities forced Google to provide access to its search engine without any benefit in return, publishers—and other groups who could one day find themselves in the same boat—would be exempted from examining themselves more closely, and innovating to satisfy consumers better. This would also automatically mean lost business opportunities that Google’s competitors could have sought absent authorities’ intervention.
Rather than favoring competition, antitrust policy again risks stifling it and actually entrenching Google’s dominance.
Mr. Petkantchin is research director at the France- and Brussels-based Institut économique Molinari.