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Elizabeth Lu’s Law Essay

NCH London | July 26, 2019

Was the EU Commission correct to fine Google for abuse of a strong market position in online markets?

Under European Competition Law, Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibits abusive, unilateral behaviour by dominant companies. In order to demonstrate abuse of dominance, three elements must be established: market definition, dominance and abuse. In both Google Search (Shopping) and Google Android, the European Commission fined Google for its unlawful abuse of dominance in online markets. In Google Android, the Commission found Google guilty of strengthening its market dominance whilst hindering the competitiveness of rivaling companies in relation to the exclusive pre-installation of Google’s own applications (Google Play Store) and services (Google Chrome Browser).

In Google Search (Shopping), Google was found to have systematically prioritised its own results in general search results, while demoting resultsgenerated by rival comparison-shopping services. In assessing whether the European Commission was correct, this essay will evaluate the Commission’s finding of abuse, the aims of competition law, and the nature of the online market. The Commission is correct to adjudge Google as a dominant company by concluding that Google enjoys more than 90% market shares in almost all member states. The Commission also found high barriers of entry and expand in the market due to Google’s possession of vast investments and data as well as the infrequency of switching search engines supportive of its dominance. Google’s vast market share can be interpreted as Google’s monopoly on user information because information as such is not readily available for other rivaling companies, which increases the difficulty of market entry. In online search markets, information is arguably what equates to leveraging power as consumers tend to choose shopping comparison services with the most information. Consequently, Google’s ownership of vast databases, obtained through exclusive deals, proves not only its monopoly on information, but also its dominance in the online search market.

In both cases, the Commission argued that Google’s actions constituted abuse. An action is considered abusive when it causes damage to consumers12 or leads to anti-competitive effects by distorting the equality of opportunity between competing economic operators13. In Google Search (Shopping), Google diverted traffic to its own sites at the expense of its rivals; in Google Android, Google disadvantaged competing apps as Android users are less likely to install competing apps due to status quo bias, which means users often stick with pre-installed apps. On both occasions, Google caused damage to consumers by depriving consumers of a choice of shopping recommendations and Android apps. At first instance, it seems impossible to contest the Commission’s findings. However, this decision of abuse can be challenged considering the unique economic model of the online market. Richard Posner has characterised the internet-based business as a new economy due to its unique differences from traditional market. With reference to Posner’s interpretation that new business models in online markets rely on customisation and personalisation of goods, it can be argued that it is essential for search engines such as Google Shopping to target each consumer specifically, given the extensive accessibility of information on the internet. In fact, for internet search service providers, it is the refining of personalised services to discriminate between websites that increases their innovation and competitiveness. Accordingly, it may be further argued that Google Shopping’s prioritisation of its own search result is merely an innovative personalisation device. To classify this function as anti-competitive would deny Google’s purpose as a customised search service, and effectively deterring Google from innovating.18 From a consumer’s perspective, search neutrality reduces the utility of Google Shopping, ergo significantly decreasing consumer benefits. In view of this, the Commission’s decision in Google Search (Shopping) is ironically counter-intuitive. Instead of protecting consumers from damage of “deprivation of choice”, the Commission itself has deprived consumers of the benefit of enjoying a targeted searching experience.

While the lack of search neutrality is not an abusive behaviour, this entails that the discrimination algorithm must be applied to all websites and not just Google’s competitors. Rosamaria Bitetti argues that Google’s selective application is an upgraded, new feature of Google Shopping’s digital functions. As it is necessary for goods producers in the digital market to integrate new functionalities regularly to survive, differences between anti- competitive bundling and the introduction of new features have become increasingly indistinguishable. By the same token, the bundling of pre-installed Google apps with Google Android can be seen as an upgraded feature rather than anti-competitive. If it can be proved that the upgraded features in both cases allow more seamless use of Google’s online search services and Android, the pro-competition effects of Google’s actions should outweigh its anti-competitive effects. Thus, Google is not abusive.

It is also worth noting that consumers are the sole beneficiary of Google’s innovation, research and development. Although both fines of Google’s “abuse” can expand the online market by allowing market competitors more opportunities to provide their services to the internet marketplace, Google’s future innovation may be impeded at the expense of consumers. Yet, the logic that Google’s bundling is beneficial to consumers – and therefore not abusive – is predicated upon the understanding of consumer protection being the aim of competition law. Whereas this view is strengthened by former European Commissioner, Mario Monti’s argument that consumer welfare is the main objective of competition law, it is possible for one to arrive at an opposite conclusion if the Commission’s decisions are regarded from the point of view of market competitors.

The European Commission has argued that competition law intends to protect competitors. Similarly, Fox argues that competition law protects the openness of access to the market. Though consumers benefit largely from Google’s innovative practices, Google’s competitors have experienced the contrary. In Google Android, Google’s tying practices diminished manufacturers’ incentive to pre-install competing services, subsequently preventing mobile browsers from competing on level grounds with the pre-installed Chrome browser. Such practice prohibits rival search engines from collecting more data (such as search and mobile location data) from smart mobile device. In other words, Google’s monopoly on internet data restricts the openness of the online market, and therefore restricts equal competition between market players. Thus, one can argue that Google’s anti-competitive effects outweigh Google’s benefits to consumers.

It is possible to reconcile the conflict between the two aims. One argues that while competition law protects consumers, its ultimate purpose is to safeguard the process of competition. The fact that dominance itself is not illegal but an abuse of dominance is illegal shows the law’s focus on the conduct of companies. The fact that this restriction is applied to dominant companies only and not all companies demonstrates a fundamental focus on the process of competition and not consumers. Adopting this view, it is concluded that Google has abused its dominance. However, this conclusion is unsatisfactory, as it does not address the deterrence effect of innovation and possible future harm to consumers as illustrated before. This resonates Tilford’s argument that market share and power is an important incentive for technology companies to innovate. It is questionable whether the Commission’s tough attitude towards market abuse by strong companies in traditional markets should be applied to online markets.

To conclude, the EU Commission is correct to fine Google for abuse of its strong market position in online markets. The Google saga is significant because it reveals gaps in competition law which sees the Commission’s failure to take into account the evolving characteristics of the online market.

Elizabeth Lu

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