Op-ed published exclusively on the Institut économique Molinari’s website.
The European Commission fined Google 2.42 billion Euro for allegedly abusing its market-dominance as search engine by giving illegal advantage to “shopping”, its own product comparison service. This decision is gigantic. The many faults in the reasoning behind the gigantism are worrisome.
Granted: This is a preliminary assessment of the Commission’s decision. But even a first overview reveals many problems in the Commission’s reasoning. The gravest are the following.
Instead of protecting competition as an institution, the Commission opted for protecting some agents at the expense of others. In putting the interests of some consumers and those of some of Google’s competitors first, the Commission did not go through a thorough analysis of the relevant market. Instead, it reviewed with overzealous granularity the position of each agent respective to another.
Competition law, however, does not regulate how much surplus, rent or welfare each agent should have. This they can each do on their own, via private enforcement. Competition law is only about the institution of competition. In a growing market with ever more participants and intensifying differentiation, it does not seem that any behavior was detrimental to the dynamics of competition. But the Commission ignored all aspects relating to competition focusing on the private interests of some agents in that market.
Instead of taking the dynamics of market-process into account, the Commission opted for a static mindset; one that barely addresses the particularities of the digital economy. Since the Commission preferred for advocating on behalf of Google’s competitors and some consumers, its analysis of the market in case is meager at best. The digital market has many particularities and underlies a changing dynamic that were not recognized by the Commission. More than that: The Commission opted for not reflecting about which model is best fit to understand and explain digital markets.
For example, in the market in case – product comparison – substitution is almost infinite and comes at no cost: The interested buyer can browse through direct and even stationary channels, look up products in dedicated websites like Amazon, other search engines, second-hand platforms, specialized sites and even social media. Also, market-entry barriers are non-existent. It was Google itself that prepared the market for potential competitors – they face almost zero entrance costs. Finally, consumers increasingly combine information of all channels mentioned above and more. This alone is enough indication of a very competitive environment, in which it is difficult to have a position of dominance end even more difficult to abuse this position.
Instead of using precise terminology, the Commission opted for ambiguity. The relationship between Google and the users is one of exchange. No doubt. But saying, as the Commission does, that the users pay for Google’s services with their data amounts to claiming that children pay for their parents’ love with devotion. The concept of payment involves the exchange of marketable goods. While data might be marketable for Google, it is not, as of today, marketable at the individual user’s level. A single person cannot sell information about herself; and even if she could, that information would be worthless.
The Commission, in using the idea of payment with such liberty, sets a problematic precedent. Law generally and competition law specifically need precise terminology. This applies especially to enforcement agencies. Otherwise, arbitrariness becomes the norm.
The European Commission’s decision against Google is problematic in many ways. In shows that the enforcers of the law are more than willing to act politically, even if it means bending the law. But what makes the decision truly worrisome is how little the understanding Commission has of the digital dimension – not to mention how little the Commission trusts market-processes, generally.
Henrique Schneider is Chief Economist of the Swiss Federation of Small and Medium Enterprises sgv and a member of the Swiss Competition Commission. This is his personal opinion.