What To Do About Google? – Forbes
Googleâ€™s public relations team must be exhausted. Each day brings a new story of how Google abuses its market power in search-based advertising.
In just the last month, Google was accused of wrongfully booting the social media app Gab from its Android app store; making services such as Google Docs incompatible with rival browser Opera; suspending the AdWords campaign of rival browser Vivaldi; demonetizing videos on YouTube from content creators deemed too controversial; and threatening to blacklist publishers from Adexchange and DoubleClick for violating Googleâ€™s ban on hate speech.
These episodes have whipped up passions on all sides of the political spectrum, and commentators are agitating to regulate the search-based advertising monopolist.
Before discussing remedies, Googleâ€™s offensive conduct must be placed into two distinct bins: censoring speech (via blocking) and threatening innovation (via discrimination). Blocking Gab and threatening publishers goes the issue of speech, whereas discriminating against Opera and Vivaldi (or against local search app Yelp) raises innovation concerns. As a competition blog, the remedies discussed here deal with promoting edge innovation. (You probably donâ€™t want an economist giving advice on protecting speech, but if you’re really interested, the Mercatus Centerâ€™s Alex Tabarrok took a shot here.)
So many remedies. How to choose?
The Atlanticâ€™s Franklin Foer is calling for a breakup of Google (as well as Amazon and Facebook). Harold Feld of Public Knowledge, a left-leaning think tank, argues that, when it comes to search neutrality, â€œit would be fairly straightforwardâ€ to impose a non-discrimination requirement on Google (and other search engines) that means â€œdonâ€™t favor your own stuff over non-affiliated products.â€ On the alt-right, Steve Bannon wants Google (and Facebook) to be treated like a â€œpublic utility.â€
While at New Americaâ€™s Open Markets, Lina Khan called for â€œrestoring traditional antitrustâ€ enforcement of digital platforms, as well as â€œapplying common carrier obligations and duties.â€ Google perceived the threat of enhanced antitrust enforcement to be so great that, in response to a 150-word post on the think tank’s website applauding the European Unionâ€™s enforcement actions against Google, it allegedly used its financial clout to get the scholars fired, which in turn kept Googleâ€™s monopoly abuses in the news for several more cycles.
Among these innovation-promoting remedies, the most compelling is to subject Googleâ€”along with Amazon and Facebookâ€”to a non-discrimination standard, enforced by an independent tribunal (the â€œNet Tribunalâ€). Patterned off the program-carriage protections created by Congress in the 1992 Cable Act, independent websites or app providers would have a new forum in which to lodge discrimination complaints against onlineÂ platforms.
Before explaining why this remedy is superior, letâ€™s quickly review the limitationsÂ of the other proposals. (This happens to be the same solution Iâ€™m peddling for net neutrality; if I could write the rules, Internet service providers would be regulated by the same tribunal.)
Bannonâ€™s call for public-utility regulation can be quickly dismissed, as it reflects a lack of understanding of the difference between a public utility (a service that everyone must have at a reasonable rate) and common carriage (an obligation to treat all similarly situated customers the same way). Feld has a nice treatment on this distinction. Because Google doesnâ€™t charge end users for access to its search platform, there is no analogue to a reasonable rate for customer access to the platform; thus, public-utility regulation is misguided here. (Of course, Google charges advertisers for getting successfully placed, but its advertising prices are set by second-price auction and Iâ€™m not aware of any episodes of exclusion or discrimination.)
What about beefed-up antitrust? As it is currently enforced, antitrust has a blind spot when it comes to addressing pure innovation-based harmsâ€”that is, conduct that discourages entry (and thus impairs competition) but generates no short-term price or output effects. That the antitrust agencies have not brought a pure innovation-based case for two decades (U.S. v. Microsoft) speaks volumes about the evolution of antitrust enforcement in practice.
This is not to say that antitrust canâ€™t address Googleâ€™s discriminatory conduct in theory. Nothing in the Sherman Act speaks to price or output effects. Under the consumer-welfare standard that now undergirds antitrust, however, it is exceedingly difficult for a plaintiff to prevail without showing a concrete harm to consumers. Assuming Googleâ€™s properties are just as compelling as its disfavored rivals, Googleâ€™s favoritism serves merely to shift clicks away from rivals and towards its own properties, with aggregate output (and prices) unfazed.
And even if an antitrust agency were willing to bring a case based purely on innovation harmsâ€”no private litigant could reasonably fund such an effort given the small chance of success under todayâ€™s jurisprudenceâ€”the snailâ€™s pace of antitrust renders it impractical as a remedy for promoting edge innovation. By the time an antitrust case reaches a verdict, the edge innovator (think Netscape in Microsoft or AMD in Intel) would be dead.
Lina Khan recognizes this gap in antitrust as applied to digital platforms, and calls for new antitrust standards. In particular, she advocates that antitrust impact be judged not on price or output effects, but instead on â€œwhether a companyâ€™s structure creates certain anticompetitive conflicts of interest; whether it can cross-leverage market advantages across distinct lines of business; and whether the structure of the market incentivizes and permits predatory conduct.â€ By the time new antitrust standards are adopted and then implemented, however, Googleâ€™s discrimination will have squashed rivals (and innovation) like a bug. Reforming antitrust standards is a long-term project.
(For these reasons, I believe Eric Schmidt misperceived the near-term threat of stepped-up antitrust enforcement, as called for by the Open Markets scholars. If the goal was to protect Googleâ€™s monopoly over the next five-to-ten years, his call to New Americaâ€™s president was ill-advised. And if the goal was to silence dissent by other scholars, his call was illiberal and showed a glaring ignorance of what motivates true academics.)
Breaking up is hard to do
Barring an act of Congress, the breakup of Google, as contemplated by Foer, would be the culmination of a (risky) antitrust case brought by the government. Here the template is U.S. v. AT&T, which ended in the 1982 Modification of Final Judgment (MFJ), splitting the long-distance carrier from its equipment and local telephone units (the â€œBaby Bellsâ€). Given that the DOJâ€™s case was filed against AT&T in 1974, and given that the implementation of the MFJ took two years (from 1982 to 1984), AT&Tâ€™s breakup occurred approximately one decade after the case was filed.
Even if Googleâ€™s breakup could be implemented instantaneously, it is not clear how to structure the divesture in such a way as to narrowly target Googleâ€™s discrimination against rival apps or websites. Splitting Google horizontally into regional search engines (the “Baby Googles”?) would not eliminate the Googles’ incentive and ability to favor their own web properties. This suggests a vertical split of Googleâ€™s core search/ad-platform business from â€œall elseâ€ (YouTube and other web content, as well as its browser). But given the potential synergies between supplying search and online contentâ€”notwithstanding Googleâ€™s disappointing foray in social mediaâ€”the net benefits of such a move could be negative.
Indeed, Congress recognized this very tradeoff when deciding whether to permit cable operators to vertically integrate into programming. To spare the synergies between pipe and content, vertical integration was tolerated, but cable operators were required to abide by nondiscrimination standards in the 1992 Cable Act. The standards would be applied on a case-by-case by a neutral factfinder. In particular, an administrative law judge at the Federal Communications Commission (FCC) determines whether a independent cable network was unfairly treated and harmed as a result.
Independent app providers could bring complaints to a similar Net Tribunal to adjudicate claims of discrimination against Google (or any dominant online platform for that matter). The presumption would be that any preferential arrangementâ€”whether between Google and its own web property, or between Google and a preferred partnerâ€”was not in violation of the nondiscrimination standard, and the independent app provider would bear the burden of proof to overturn that presumption. Borrowing from the evidentiary requirements under the Cable Act, the complaining app provider would have to show that (1) it was similarly situated to an app that received preferential treatment; (2) that the cause of the disparate treatment was the lack of affiliation or partnership (as opposed to some efficiency justification); and (3) as a result of the discrimination, it was materially impaired in its ability to compete effectively.
A lawyer, an engineer, and an economist walk into a bar
The Net Tribunal could be a headed by a single judge, or to import an idea from the U.S. Copyright Royalty Board, could be spearheaded by three judgesâ€”one lawyer, one economist, and one engineer. To shield the process from political influence, findings by the tribunal would not be subjected to agency review.
Based on the experience of discrimination complaints adjudicated by the FCCâ€™s administrative law judge, the expected length of a case at the Net Tribunal should be between one and two years. This might seem long, especially for a startup, but itâ€™s a lot faster than an antitrust court. Because the aim of the regulation is to protect edge innovation, speed matters.
Relative to other innovation-promoting remedies, the Net Tribunal is narrowly targeted to the problem of discrimination, and it could bring relief to independent edge providers in a short period of time. NowÂ thatâ€™s something that Eric Schmidt should really be concerned about.
I am a senior fellow at George Washington Institute of Public Policy and editor of Washington Bytes. You can follow me on Twitter @halsinger.
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