Editor's note: The following is a guest post by Eric Clemons, Professor of Operations and Information Management at The Wharton School of the University of Pennsylvania. The views he expresses are his own, and we present them here to foster debate.The mainstream press, such as The New York Times, has noticed that even Google itself is starting to worry about the possibility that the Department of Justice may seek regulation, possibly even the break-up of Google. How can this be? How can a firm seen as a triumph of creative capitalism and a virtuous contributor to the economy ("Don't be evil!") possibly be suspected of anything? Is this regulatory oversight gone mad? Not exactly.
Below I summarize what I do know about Google's behavior and what I believe the Department of Justice is likely to perceive and likely to need to demonstrate if it seeks to act against Google. In a later post I will expand, including what I believe but cannot yet demonstrate. It's important to remember that I am not an attorney, just a computer science faculty member at a major business school, with some litigation experience, and that I have had no conversations with Google or with the Department of Justice about these issues, but I believe that what follows provides some insight into thinking at the Department of Justice.
* Even with the appearance of competition from other search engines such as Yahoo and Microsoft in the market for sponsored search, Google enjoys monopoly power over corporations that participate in its keyword auctions. This monopoly power is especially great when Google deals with corporations whose operations are largely fixed cost, such as hotels and airlines.
* Google is abusing its monopoly position by overcharging corporations for access to consumers. These charges are passed along to consumers and ultimately result in consumer harm.
* Google is likewise abusing its monopoly position, deterring market entry in areas that would benefit consumers and damaging potential entrants.
Any one of these would justify regulatory intervention. The second and possibly the third would also justify some form of financial compensation to those who could demonstrate that they had been damaged by Google.
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Comments (2)
If this is the best antitrust case anyone can come up with against Google, then Google doesn't much to worry about.
It may very well be that Google has unfair control over the market for advertising. And that may not matter. Advertising can never be more than a tiny fraction of real GDP. The regulatory regime that will eventually govern Google's actions will look much more like what is described by Pasquale and Bracha:
http://ssrn.com/abstract=1002453
An anti trust case brought by big advertisers and Madison avenue would be properly perceived by both the courts and the public as equivalent to the sobbing of a spoiled child.