November 23, 2017

European authorities fine Google for search tactics

This week the European Commission (EC) announced that it is fining Google $2.7 billion for anti-competitive tactics in the company’s iconic search product. In this post I’ll unpack what’s going on here.

I have some background on this topic. In 2011-12, when I was Chief Technologist at the FTC, the agency did a big investigation on this same topic. The FTC eventually decided not to bring a case against Google for this behavior. The EC has now reached a different conclusion.

The EC makes two main claims. First, they claim that Google dominates the search engine market in Europe–it’s pretty hard to argue with that.  Second, they claim Google designed its dominant search product in ways that unfairly advantage the company’s own Google Shopping product and unfairly disadvantage competing comparison shopping products.

Competition law is complicated, and I won’t presume to offer any legal analysis. But the basic principles motivating competition policy are not too complicated. Fair competition is encouraged. If your business grows because you improve your product, or manage your operations well, or negotiate shrewdly, or simply happen to be in the right place at the right time, that’s all good. If you amass dump trucks full of money doing this, then good for you, and thank you for your tax dollars. That’s how capitalism is supposed to work.

But if your effort is devoted to preventing fair competition, then you are probably harming consumers, and that’s a competition policy problem.  To see the difference, suppose you’re in the business of delivering packages to people’s homes.  Fair competition means buying better trucks, optimizing routes and schedules, hiring better employees, and so on.  But if you send out employees to block your competitors’ trucks, that is an anticompetitive tactic.

Now back to Google. The EC says that when users do searches relevant to shopping, Google gives its own Google Shopping product preferred placement in the search results–and higher placement leads to more clicks and more sales–while demoting competing shopping products in the search results. These two claims, self-promotion and competitor-demotion, may sound similar at first, but they raise different issues for us in understanding the case, so let’s look at them separately.

On the self-promotion claim, we know the relevant facts. On shopping-relevant searches, Google puts a box at or near the top of the search results, showing Google Shopping results with images of items for sale. That is a valuable benefit that Google Search is giving to the Google Shopping product. Is this anticompetitive? Google’s strongest argument to the contrary is that the Shopping box is essentially an ad, and Google already places ads at the top of the page. If Google auctioned that space off to the highest bidder for advertising, nobody would object. So why is it a problem if Google gives that advertising space to Google Shopping? The company could make a symbolic payment to itself to buy the space, if that made a difference to anybody.

The competitor-demotion claim is very different–the theory is less complicated, but the analysis depends more on facts not available to the public. If Google is gratuitously demoting its shopping competitors in search results, that is problematic. But Google says it is not doing that–it says that those competitors’ placements arise naturally from a search ranking algorithm based on design decisions that the company made for legitimate, pro-consumer reasons.

It’s hard for the public to tell who is right. Google’s ranking algorithm is complicated, and it changes constantly, as the Web changes and as Google works to counter sites’ attempts to game the algorithm. Is there evidence that Google tweaked the algorithm with the goal of demoting shopping competitors? Did the company make algorithm changes for the wrong reasons, or did suspicious changes happen outside the normal process? These questions are answerable in principle, but only by looking at the company’s internal information, which the EC might have but we, the public, do not.

At this point, I need to put some of my cards on the table and admit that I know more about this topic, having worked on the FTC’s investigation which asked some of the same questions. But that investigation was confidential, for good reasons, and I will not violate that confidentiality. All I’ll say is that the FTC had the legal power to compel answers to factual questions about Google’s practices (and an obligation to keep the answers confidential) and, having conducted a thorough investigation, the FTC decided not to bring a case against Google.

So why did the European authorities get a different result than the U.S. authorities? The answer might lie in differences between European and American competition law. Or it might lie in the fact that European authorities find it easier to enforce against a foreign company. Regardless of the reason, Google is presumably looking for ways to resolve the complaints that led to this investigation being started.

 

Comments

  1. Joel Reidenberg says:

    Here are three other possibilities for the different result beyond any differences in competition law–

    Google may have given different answers to EU regulators on similar questions
    EU regulators may have asked different questions
    EU regulators are generally more willing to enforce competition claims than the DOJ or FTC

    As to the distinction between algorithmic self-promotion and competitor-demotion, the conceptual line may be very hard to draw. I think there is a difference where ads are sold to 3rd parties vs. self-dealing like Google Shopping. Google Shopping has at least one subsidy– the results are at the top of the page– that is unavailable to 3rd party advertisers if Google reserves the box at the top of the page for Google Shopping. This necessarily demotes competitors to lower placement on the page.

  2. Andrew Appel says:

    Here’s another possible answer:

    The FTC investigation was 5 years ago, the EC’s investigation was more recent. Google’s practices could have changed.

  3. Wendy M. Grossman says:

    …and of course there is no reason why there has to be only *one* of the above. My guess would be a mix of all of these. But there is no doubt that the EU is more willing to bring antitrust actions – particularly against American companies – than the US is at the present time. Very few markets are big enough to be able to do it at all – there must be many smaller countries where it would be easier for Google to exit the country than to change its practices. For the time being, the EU is leading in this area.

    wg