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The Google Advertising antitrust-case explained

Posted on    by Konstantinos Stylianou
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The Google Advertising antitrust-case explained

By 1 December 2023December 5th, 2023No Comments

Google has seen better days. September marked the beginning of the trial on the case the US Department of Justice brought against Google in January 2023 (the case dates back to 2021). It was the culmination of a long-standing battle between the Biden administration and BigTech, one that involved other high-profile cases too, including against Amazon, Microsoft, and Meta.

The Google case has many strands, but the two main allegations are that Google paid phone companies such as Apple and Samsung to pre-set Google as the default engine, and that Google artificially raised prices for advertisers. While the trial is closed to the public and many of the documents are redacted, it is not hard to see the stakes in this trial. Google makes most of its $220+ bn revenues from search advertising, and it pays Apple up to $26 bn annually to make it the default search engine on the iPhone.

The interesting thing here is that we don’t know what a victory will look like for the government or whether the BigTech world will be a better place after the end of the trial, even assuming a government win. Some aspects of the case are more straightforward than others. For example, it is likely that if the government prevails on the claim that Google artificially raised fees for search advertising, the expected remedy will be that Google cease this conduct. In theory, that should be a welcome development, because it will remove a distortive parameter from the market. More drastic remedies, such as an order that Google divest its advertising business (including its acquisition of DoubleClick in 2007), are highly unlikely, although not impossible. One can recall the Microsoft case of the late 90s where the court at first instance did order the break-up of Microsoft, only the case to be remanded on appeal.

Professor Konstantinos Stylianou highlights recent litigation against BigTech in video interview with MarketWatch.

But when it comes to Google as the default search engine, what good will it do to ban Google from such arrangements? Wouldn’t Apple pick Google as the default anyway (the main reason why Google is paying is to reduce the risk that one of its competitors will pay Apple to make their search engine the default)? And even if Apple was not inclined to choose Google without the payment, are users better off if Microsoft’s Bing became the default? It is true that competition law cares about the process of competition and not just the outcome, so that the same outcome (i.e. Google as the default) can be illicit if it results from anticompetitive conduct, and legal if it results from competition on the merits.

Even if that’s the case, it is worth thinking whether a case that may result in little tangible change is the best use of competition authorities’ resources.

In the final analysis, and barring drastic remedies such as break-up, Google is likely to emerge unscathed. Its stock price was unaffected by the regulatory hurdles, and a minor reshuffling of its business model may not prove very disruptive for the firm. Companies like Google are extremely adaptable, present in multiple markets, and with a proven record of shifting their activities as needed to continue to innovate, generate revenue and value, and building moats around their most valuable business lines (see, e.g., Stylianou, 2018). And yet, antitrust action is still welcome. Even in lack of tangible change it is important that companies be reminded that competition authorities are there to prosecute them when they break the law. Threat of action would be severely weakened if competition authorities never actually sued companies, even when the chances of success are low.

The EU has learned this lesson time and again. From the Microsoft case in 2004, where Microsoft was accused of illegally tying Windows Media Player to the Windows operating system, and then had to offer a version of Windows without it achieving less than 1% of sales, to the Google Shopping and Google Android cases more recently, which concerned self-preferencing, tying, and no-forking obligations, and which failed to meaningfully assist comparison shopping services better compete or to loosen Google’s grip on the Android ecosystem, it is inherently hard to design and execute remedies. Digital ecosystems are such integrated protean systems, that even suitable remedies may fail to make a difference, especially a decade or more after the anticompetitive conduct arises.

This is why, after years of trying to reign in BigTech and after realising that meta-regulatory measures such as codes of conduct, regulatory forums etc. might not be effective (see, e.g. Schlesinger, 2021) the EU adopted the Digital Markets Act and Digital Services Act to ban ex ante many of the practices that can commonly have anticompetitive effects (see, e.g., Eben, 2021).

Failing everything else, antitrust enforcement still has value in that it keeps up the pressure on firms to behave. As they say, the value of the sword of Damocles is that it hangs, not falls.