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Saturday, 29 November 2014 00:00
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Contestability is the key to looking at monopolies

With both Democrat and Republican politicians in the US writing jointly against the move, it is obvious the European Parliament moving against Google has become the symbol of a long battle between the US and the EU on how to regulate Silicon Valley—on Thursday, the European Parliament voted in favour of unbundling Google’s search engines from its other commercial services. The move was accompanied by France and Germany writing to the European Commission asking it to launch public consultations on whether current competition rules were adequate to deal with the way some companies functioned. On the face of things, the vote means little since the European Parliament does not have the right to dismember Google; the purpose of Thursday’s vote was more to put pressure on the European Commission to act against Google—the Commission has been conducting an anti-trust probe into Google for 5 years now, and there have been several unsuccessful attempts by Google to settle the case. Google accounts for over 90% of web searches in many European countries as compared to around 70% in the US.

Defending, even deciphering, Google’s business practices isn’t easy, and in even the US, Google has had to agree to change its business practices to avoid censure from the Federal Trade Commission last year. One such change was, for instance, giving online advertisers more flexibility to simultaneously manage ad campaigns on Google’s AdWords platform and on rival ad platforms; another was to refrain from “misappropriating online content from so-called ‘vertical’ websites that focus on specific categories such as shopping or travel for use in its own vertical offerings”. The worries about Google’s invasion of privacy are well known.

But before calling for dismembering Google, a few points need to be kept in mind. One, in the internet space, the network effect lends itself to monopolies or quasi-monopolies. Two, while Google has a big advantage in terms of advertising because of the masses of data it collects and analyses each day as more and more people use its services, theoretically there are no costs for users wishing to switch to another search engine. Also, while those looking to break up Google—amongst the largest voices against Google in Europe are two German media giants—are primarily competitors, all Google’s users benefit from its free search. In all online business, unlike the offline one, contestability is the key—as long as it costs little to create competition, market forces will take care of the problem. Despite Google’s popularity, Facebook began eating into its revenue; indeed, Facebook had to fork out $19 billion to buy WhatsApp when it found WhatsApp was eating into its popularity. In the case of Google, as firms develop their own apps, people are spending less time on the internet … the number of such examples can be multiplied manifold. Wherever there is contestability, there is a poor case for anti-trust action, and certainly of the type envisaged by the European Parliament.

 

 

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