When Innovation Is Bad: The EU vs. Google
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In its latest broadside against American technology companies, the EU last month slapped Google with a record $2.7 billion fine for leveraging its dominance as a search engine to boost Google Shopping over competing online services. This is indicative of the EU’s ongoing battle with American tech companies, with Google, Facebook, Apple, and Microsoft under constant scrutiny of the regulators in Brussels. But this EU flavor of antitrust is very different from American antitrust law and has far more to do with industrial policy than consumer protection.

Indeed, despite the recent judgment against Google, the company continues to face additional scrutiny over its Android operating system that could result in further fines. And now that Google is defined in the EU as a “dominant firm,” defending itself from further challenges may become more difficult. Yet with all the heavy fines and bureaucratic crackdowns, there is little to point to in the way of consumer harm, suggesting that EU antitrust policies are more about promoting home-grown tech companies at the expense of innovation and Silicon Valley’s world-class technology companies.

Make no mistake: antitrust is a form of regulation, and as such can be a tool for imposing the preferences of governments over markets. As with any form of regulation, it is subject to political forces and interest groups that opt to pursue profits through government intervention rather than market competition. Consumers are not complaining; it is the rivals of Google that are leading the charge to hobble the company’s innovations. And, unfortunately, American companies such as Yelp and Trip.com have piled on, cheering foreign government interventions for their own self-interested reasons.

American antitrust law has always been grounded in the notion of consumer welfare. If prices are declining and output is expanding, it is very difficult to make a case for antitrust intervention in the United States. Europe (and nations such as Korea and Taiwan), on the other hand, often uses antitrust law as a tool for industrial policy, shaping markets to meet the preferences of regulators. Across the globe, American technology companies are facing aggressive antitrust practices that have more to do with industrial policy and protectionism than consumer welfare, which is a clear departure from practices in the United States, where rising prices and reduced choice are the red flags that would initiate an antitrust investigation.

Even the EU’s statement defending its actions against Google is nebulous. The main finding is that Google is a dominant firm and therefore has “special responsibilities.” Apparently, these include not competing very hard against your rivals. Further, according to the European Commission: Google has “deprived European consumers the benefits of competition on the merits, namely genuine choice and innovation.” “Genuine choice” is a slippery term that provides ample regulatory discretion. But choice does exist and appears pretty genuine. Google offers online shoppers an array of choices for comparison shopping. Second, there are other search engines available, as well as shopping comparison tools like PriceGrabber or Priceblink — not to mention online platforms such as Amazon or eBay. That Google has made it more convenient for its users to comparison shop should be seen as a benefit. And the cost to the consumer of scrolling down a page or clicking the next page button is virtually zero, giving consumer more choices than ever before.

And the claim that innovation is thwarted by Google’s ad placements is dubious at best. Like most regulators, those in Brussels are looking at a static model of internet usage, crafting regulations to divvy up the market under today’s rules. But markets are dynamic, always searching for new, more efficient ways to connect buyers and sellers. Google’s actions create even more reasons to innovate, and the development of the apps market where the user is transported to the price comparison tool of their choice — from Overstock to Letgo — is a popular alternative to the browser experience. While most prevalent in the mobile market, these apps are also making headway in desktop applications. Moreover, Facebook is also ramping up its services with new shopping capabilities on the social media platform that provide a new distinct service for online shopping.

At the end of the day, the EU’s $2.7 billion fine against Google appears to be less about consumer choice than about regulating the structure of the current market. Google is challenging the judgment, but if it fails, compliance may prove costly and challenging. Google emerged as a global internet leader through innovation that expanded customer choice through new services and products that satisfy consumer demand. To arbitrarily punish these innovations raises concerns about investing in the internet’s future and the ability of America’s tech giants to compete in a global market controlled by hostile regulators.

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