MDC Google The New Monopolist Case Study

In
1998 the U.S. Department of Justice (DOJ) filed a major antitrust
lawsuit against Microsoft for abusing its monopoly power against
Netscape in the browser wars. The protracted case ended with a partial
government victory, though it scarcely hurt Microsoft’s uncontested
monopoly power in the operating system business. At the time, it seemed
clear that, in the information age, monopoly was becoming the norm
rather than the exception. This normalization of monopoly power began
with the emergence of companies like Intel, Cisco, and Microsoft, which
controlled critical ubiquitous software and hardware platforms.
Concentration of power often depends on network effects, whereby a
product’s value increases with the number of people who use it. While
the power of Intel and Microsoft has waned over the years, there are
some new potential monopolists, including Google, Facebook, and Twitter.

Hence
it is not surprising that the U.S. and European antitrust officials
have shifted their attention away from Microsoft to Facebook and Google.
Google dominates the search engine business with a 78% global market
share, despite Microsoft’s late entry into the market several years ago
with its Bing search engine. Antitrust laws such as the Sherman Act do
not necessarily make it illegal to be a monopoly. However, it is illegal
for a company to abuse its monopoly power, to leverage that power
in order to tilt the playing field against new competitors or
competitors in related businesses to which the monopolist wants to
extend its scope. Accordingly, Microsoft was accused of “tying” in
violation of the Sherman Act, that is, combining its Internet Explorer
browser with Windows so that it could gain control of the browser
market.

Google’s
founders realized that the information delivered to users by a pattern
of searches was the information needed to determine relevant ads. Search
results could produce the ads that users were interested in seeing.
Thus, while Google’s content and information is free, the company
generates massive revenues from its innovative ad business Google’s
algorithms dramatically transformed the advertising industry and ushered
in the “Google era” along with the company’s online dominance. Like
Microsoft, Google was in a position to use its expanding monopoly power
in one business (search engines) to gain market share in other online
industries. The company could simply adjust its secret search engine
algorithms to favor its own products or services and direct users to its
own websites instead of those operated by competitors. Concerned with
Google’s growing power and reach, the Federal Trade Commission (FTC),
working in conjunction with the Department of Justice (DOJ), launched an
investigation into Google’s practices. The FTC considered whether
Google has rigged its search ratings to promote links to its own
shopping, local, travel, and finance sites over those of rivals.
Google’s own sites frequently showed up on the top spots of its search
results. Search for a restaurant like “Capital Grille” in Dallas and
it’s likely that you’ll be directed to Google Places, the company’s
local business information page. Critics of Google say that given its
large market share, the company should treat its own content in the same
way that it treats the contents of its competitors.

Google’s
practices became more obvious when it entered the lucrative $110
billion online travel business in 2011. Google conspicuously placed its
own travel service atop services such as Expedia, Orbitz Worldwide,
Inc., and Priceline. A search such as “Memphis to Omaha” yields a
“Google-powered interactive chart” of the least expensive airfares
between these two cities, and a Google flight tool links exclusively to
the airlines’ websites. Further down on the list are links to the top
travel websites such as Expedia. Similarly, in the past, a user’s search
for a hotel might return a dozen or so conspicuous links to online
travel agencies and hotel operators. But more recently the search most
prominently displayed a Google shopping services page with reviews,
hotel photos, and an offer to book a room.

Google
also favors its own comparison shopping services, known as Google
Shopping. When someone initiates a product-related search such as
“electric heater,” or “toaster,” Google returns ads above the organic
search results that link directly to retailer sites (such as Target or
Walmart) where those items can be purchased. The picture ads appear at
the top of the first page under a title, such as “Shop for electric
heaters on Google.” The businesses featured in those ads pay Google each
time a user clicks on their ad. Other comparison shopping sites like
Nextag operate in the same way, but those sites, which also have links
to retailers, are often demoted in the search results, even though they
may offer better deals. Google claims that it gives its own content
preference because users prefer links that send them directly to a
company’s website rather than a link to a comparison shopping site.

The
FTC eventually concluded that while Google definitely favored its own
shopping and travel services, its sincere desire to improve search
results for consumers made it difficult to justify filing suit against
the company. But Google hasn’t been so fortunate in Europe. In April
2015, the European Commission of the EU charged Google with abusing the
power of its search engine to favor its own comparison shopping and
travel services. Two years later, after negotiations failed, the
European Union’s antitrust regulator fined Google $2.7 billion.

As
Google increases its stake in online commerce, it will continue to
struggle with its dual role in cyberspace as a search engine
facilitating commerce and as a marketplace competitor. Google’s core
business principles include “Don’t be evil.” Google has interpreted this
principle to mean that it would always deliver unbiased and neutral
organic search results.

But
is Google faithful to its principles when it uses its power in the
search engine market to gain advantage in other markets such as
comparison shopping? Please give your answer to this question.