It has become widely accepted that governments ought to regulate markets to prevent monopolistic behaviour, but that view is mistaken.
Four years ago, the US Department of Justice (DOJ) launched legal action against Google, part of the Alphabet group of companies, under the Sherman Antitrust Act of 1890, which prohibits anticompetitive agreements and conduct that attempts to monopolise a market.
Under Trump-era attorney general, William P. Barr, the DOJ alleged that, “Google has entered into a series of exclusionary agreements that collectively lock up the primary avenues through which users access search engines, and thus the internet, by requiring that Google be set as the preset default general search engine on billions of mobile devices and computers worldwide and, in many cases, prohibiting preinstallation of a competitor.”
Alternatives
It is, of course, fairly trivial to bypass Google search. I haven’t used Google as my default search engine on any device for over a decade, since I don’t like the built-in confirmation bias that comes with a search engine that tracks you and learns what you want to hear.
I almost always use an alternative search engine that doesn’t track my searches and gives me objective search results that are not biased by my subjective preferences. (For what it’s worth, my preferred non-tracking search engine, DuckDuckGo, relies on Microsoft Bing’s search results, and not those of Google.)
I also don’t use Google’s web browser, Chrome, on any of my devices, preferring Mozilla Firefox, a secure, ad-blocking alternative that doesn’t use any of Google’s code.
The reason I point this out is first, to establish that I’m not a fan of Google, and second, to establish that it isn’t hard to choose perfectly functional alternatives to Google’s products.
But Barr believes that American consumers are not so resourceful, as evidenced by the fact that, and I quote, “For years, Google has accounted for almost 90 percent of all search queries in the United States and has used anticompetitive tactics to maintain and extend its monopolies in search and search advertising.”
Ruling
On 5 August, a District Court judge, Amit Mehta, ruled against Google, declaring: “After having carefully considered and weighed the witness testimony and evidence, the court reaches the following conclusion: Google is a monopolist, and it has acted as one to maintain its monopoly.”
The current attorney-general, Merrick B. Garland, declared it “an historic win for the American people”.
His deputy asserted: “It paves the path for innovation for generations to come and protects access to information for all Americans.”
Except that Google is not a monopoly. It has rivals, not only in the United States, but especially in international markets. Thanks to the Trump-Biden trade war against China, an increasing number of mobile handsets are becoming available without any pre-installed Google software.
Google is also not a threat to “access to information”. On the contrary: its entire business is about making access to information as painless as possible.
Breakup
While Google is yet to appeal, the DOJ is already steaming ahead with designing potential remedies. They may be limited to a prohibition on agreements that make Google Search the default on mobile devices but could extend to breaking up the company.
Reports say that the DOJ is considering forcing Google to divest the Android mobile operating system, the Chrome browser, and even the AdWords platform through which Google sells text advertising.
This would be a nuclear option for Google, since Google Search has no other means of earning revenue than by selling advertising, and control over Chrome and Android are critical to improve the company’s position in the emerging artificial intelligence market, where it is lagging far behind some of its many rivals.
Miraculous
Although it is true that Google pays certain companies to promote its products, the reality is that Google achieved its position simply because it is the best at what it does.
When Mozilla, the maker of the Firefox web browser, ditched Google and made Yahoo its default search engine, it lost users. Mozilla CEO Mitchell Baker described Google’s search quality as “miraculous”. Despite being paid $375 million per year, which was $100 million more than Google was paying, Mozilla switched back to Google before the five-year contract with Yahoo was up.
“[U]sers made it clear that they look for and want and expect Google,” said Baker. She also feared being forced into the arms of Microsoft and its Bing search engine, saying, “when Microsoft has power of market, it is not good partner, overrides user choice, makes it harder to use Firefox, and harder for people to switch from Bing.”
If Google were ordered to quit paying for being the default search engine – which makes up a substantial share of Mozilla’s revenue – said one industry expert, “the biggest loser of a DOJ win in the Google case would be Mozilla.”
Likewise, Apple, cited in the DOJ suit as one of the partners with which Google signed a search exclusivity agreement, opened negotiations with Microsoft, but concluded that it wouldn’t switch to Bing no matter how much Microsoft paid.
Contradiction
The ruling is remarkably self-contradictory in places. It recognises Google’s excellence when compared with its rivals. If Google were truly exploiting monopoly power to exclude its rivals, one would expect that it needn’t compete on quality.
Yet, the ruling states that, “Google is widely recognized as the best [general search engine] available in the United States,” “Google significantly outperforms all rivals on mobile devices,” and, “Google’s superior product quality rests in part on its numerous innovations over the years.”
It even has a timeline of Google’s numerous innovations: from Page Rank in 1998, to translated news in 2023.
The argument that Google’s market position somehow inhibits competitive innovation is contradicted by the facts stated in the ruling.
The ruling also explains that Google faces competition not only from other general search engines, like Yahoo or Bing, but also from what it calls “specialised vertical providers”, such as specialist websites or online retail companies. Examples include Amazon, eBay, TripAdvisor, and Wikipedia.
Ironically, if the DOJ banned Google from charging a fee for default search engine status, the outcome would harm its rivals. Because Google would remain the default search engine in many places simply by being the best search engine, its rivals would have to pay to gain default search engine status, putting them at a financial disadvantage to Google, who can get such status for free.
Poor record
The DOJ has a fairly poor record with breaking up companies. When it broke up the old-school telecommunications firm AT&T in 1974, it merely created a load of “Baby Bells”, most of which had regional monopolies.
The US telecommunications industry is renowned for its slow innovation and lack of competition, despite the DOJ’s intervention in the market.
In 1998, the DOJ tried and failed to break up Microsoft into one company that sold the Windows operating systems, and another that sold enterprise and consumer software.
Yet here we are, with the supposed monopolist having a search engine that isn’t good enough to out-compete Google. More pertinently, the DOJ’s settlement with Microsoft hinged on its inclusion of the Internet Explorer browser as the default browser on its operating systems. It still does that with Edge, the successor to Internet Explorer, and yet Edge has less than 5% of the browser market share.
Windows itself, from having over 90% market share on the desktop, is down to 72%, thanks to competition, predominantly from Apple, but also from Linux.
Meanwhile, in AI, Microsoft’s partnership with OpenAI, which produces ChatGPT, places it well ahead of rivals like Google, Meta, and X.
In most historical cases of alleged monopolies (IBM is another that springs to mind), the monopolists were undone less by regulatory or judicial action than by market competition. New rivals emerged, new technologies arose, and large, slow-moving incumbents lost their grip on the market thanks to more nimble and innovative upstarts.
Private monopolies
Classical liberalism advocates limited government with a mandate to protect life, liberty and property, and as a consequence promotes free market economics and deregulation.
This idea harks back to the very early foundations of economics as a science, when the 18th-century physiocrats, opposed to mercantilist regulation of manufacturing and trade that served to maximise imperial power, instead recommended a government policy of “laissez faire, laissez passer”, or in English, “let it be, leave it alone”.
Why then, should governments act against companies that – by virtue of being better at producing what people want and need – earn substantial market share?
Google deserves its market power. It worked hard to earn it, and it continues to earn it every day by serving its customers better than any of its rivals.
Acting against it, or breaking it up, won’t make the market more efficient. It will make the market less efficient. It will make it more expensive for Google (or the post-breakup Googlets) to produce the products it does, which will raise prices for its customers, and will make it easier for companies with worse products to make headway in the market.
As Mark Jamison argues for the American Enterprise Institute, everyone loses in Google’s antitrust ruling: “Given the superiority of Google’s products and its pace of technology advancement, no remedy could increase innovation or information access. And any remedy would damage competition as the industry would become regulator driven and less customer driven.”
Protected monopolies
Competition law ought to focus on preventing monopolistic abuses by protected monopolies. Monopolies or cartels created by government law or regulation are far more harmful than any private monopoly can be, as we’ve seen in South Africa with Telkom’s former monopoly in telecommunications, and Eskom’s monopoly in electricity.
Such monopolies face no penalty for failing to innovate, failing to keep costs down, or failing to maintain quality standards. Such monopolies are free to charge as much as they can get away with, and investors in such monopolies have little reason to reinvest, rather than extract profits.
Competition law ought to rein in monopolists created or protected by the government, remove the regulatory protection, and free the market to enable competition on quality and price.
A protected monopoly is different in character from a private company with a large market share, since it is not exposed even to the threat of competition.
Even if a large private company has no effective rivals today, a free market makes it possible for competitors to arise if that company ceases to adequately serve its customers.
The ability on the part of customers to buy less of a company’s products, plus the mere threat of upstart competition, is more than enough to ensure that a private company with great market power cannot abuse that power for long. As soon as it does, a gap is created in the market for a new competitor.
The market is far better at regulating monopolies than governments will ever be. We don’t trust governments participating in markets. There’s no reason to believe they’re any better at regulating markets.
Government intervention against alleged private monopolies almost always makes matters worse for consumers and producers alike.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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Image: Cast of a Tyrannosaurus rex skull nicknamed “Stan” at the Googleplex, Google’s headquarters in Mountain View, California. Supplied