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Sunday, November 29, 2020

Trust in competition

Case against Google in US flags important concerns. But any state intervention should be carefully thought through.

By: Express News Service | Updated: October 27, 2020 12:54:04 am
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Last week, the US Department of Justice launched an anti-trust suit against tech major Google, accusing the company of abusing its dominant market position and indulging in anti-competitive behaviour. Eleven US states have thus far joined the justice department in its case. The DOJ’s move comes after the US House of Representatives had, earlier this month, released a report on big tech companies such as Google, Facebook, Amazon and Apple, accusing them of abusing their dominant positions, “setting and often dictating prices and rules for commerce, search, advertising, social network and publishing”. Google’s dominance in several digital verticals is not debatable. Apart from its near ubiquitous search engine, its operating system, Android, commands a lion’s share of the smartphone market. Similarly, its Chrome browser is also widely used. Allegations of the tech giant abusing its dominance to help its other businesses may well have some merit. And there is, indeed, a strong case for government intervention aimed at curbing monopolies, and abuse of market power — in the US, there appears to be near bipartisan support for this move. But this case raises several contentious issues.

For one, while the case focuses on Google as it “is the gateway to the internet and a search advertising behemoth”, and notes that “it has maintained its monopoly power through exclusionary practices that harm competition”, it bears mentioning that these “monopolies” are not the outcome of government allocated/auctioned licences as may be the case in telecom, for example. They are driven by network effects. As more and more people board these platforms, the more they grow in strength. This typically leads to market concentration, which has become increasingly common across verticals in the digital/tech space. So while barriers to entry in the conventional sense may not exist, it is rare to find new players enter the market and grab a sizeable market share as it is difficult for multiple networks to coexist. Thus, whether government intervention can achieve hyper-competition in the traditional sense is debatable.

But there are legitimate concerns as well. How should policy ensure that a company is not biased in favour of its own subsidiaries? Will fines act as a deterrent? Would charging access pricing, perhaps adopting the efficient component pricing rule — essentially asking Google to charge its own entities — work? Would facilitating competition in the search space imply having to break up the company? Whatever form the government intervention takes, will it address these competition concerns without making consumers worse off? Ultimately, any policy intervention should be driven by the objective of protecting competition, not competitors.

 

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