European regulators' illusory search for harm

06/28/2017 02:41 pm ET

Yesterday, after seven long years, the European Commission announced a record fine against Google based on their unique allegations that Google Shopping results are unfairly favored over organic links to price comparison sites. Europe stands alone in this decision, as the US FTC (Commissioners and staff), Canadian competition authority, and courts around the world have dismissed such claims of “search bias” against Google.

The reason behind this divergence is based on the EC’s desire to prove that Google Shopping alone is the cause of declining traffic to a handful of European price comparison sites. To get there, the EC has to gerrymander the market to exclude some of the biggest competitors in product search. In essence, the EC is claiming that Google Shopping doesn’t compete with online shopping sites, just price comparison sites, when consumers search for products.

This EC finding ignores how consumers actually use the evolving web to locate and buy products. It shouldn’t be surprising that the data shows consumers have been leaving many price comparison shopping sites going instead to competitors that enable both comparison and purchase.

In addition to allowing for evolving consumer taste, most regulators also look at investment in markets to determine whether a market is competitive in ways that benefit consumers and innovation. Despite the EC’s narrow market definitions, Europe’s e-commerce sector is thriving. Investment in European e-commerce increased from $1 billion to $12 billion between 2012 and 2015, with notable success stories such as Zalando, Asos and Trivago, according to a study by Mark Hiley, CEO of The Analyst, who examined 25 publicly traded e-commerce companies.

The FTC took a very different and much wiser approach. All five Commissioners -- three Democrats and two Republicans -- voted unanimously to close an exhaustive 19-month investigation of Google Search, examining over 9 million pages of documents. And they did so, as the FTC emphasized later, “in accord with the recommendations of the FTC’s Bureau of Competition, Bureau of Economics, and Office of General Counsel.”

Crucially, the FTC noted in its closing statement that one could view Google’s display of its own content “an improvement in the overall quality of Google’s search product,” and not the manipulation of “its search algorithms to unfairly disadvantage vertical websites that compete with Google-owned vertical properties.”

This the right result. It’s axiomatic that competition law is meant to protect competition and not competitors. Protecting competition requires protecting the ability of companies to innovate in the products and features brought to consumers. For more than 40 years, my tech trade association has vigorously supported enforcement of antitrust laws when dynamic competitive markets, consumers, and innovation were being harmed by abusive monopolies. US regulators correctly analyzed the market and determined no harm, no foul.

On the other hand, the European model of protecting competitors can serve to lock in outdated business models at the expense of innovation. Which marketplace would lead to better results for consumers?

The EC’s Competition Commissioner, Margrethe Vestager, sings a very different tune. She recently commented on the Google case that “of course, our goal is to open up the market to solve it.” And that is the difference. US antitrust law aims to protect the ethos of competition, which necessarily means companies competing with each other to provide the best services for consumers. Apparently, the EU aims to protect competitors and to change how markets operate to benefit companies that fail to compete on the merits.

It seems that Google is being ordered to somehow ensure that competing price comparison sites receive more traffic. But how about we turn and ask consumers. Would you rather use a search page with government-mandated results artificially forcing “price comparison sites” to the top? Or more innovative results with pictures and prices of what is actually most relevant to you?

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