About the author: Jay Ezrielev is the founder of the economic consulting firm Elevecon and in 2018-2020 was an economic advisor to the chair of the Federal Trade Commission. He holds a doctorate in economics from New York University.
The U.S. Department of Justice recently scored a victory in its war against big tech. The agency is using the opportunity to push a radical policy agenda that is likely to harm consumers and reduce economic growth. Courts should reject these harmful policies and save consumers from the very agencies that are meant to be protecting them.
The D.C. District Court found in August that Alphabet subsidiary Google violated antitrust law by entering exclusive distribution agreements that made Google’s search engine the default option. The DOJ and state plaintiffs have now proposed a remedy to undo the effects of these agreements. In addition to forbidding these agreements, the proposed remedy forces Google to divest Chrome, imposes strict conduct limits on Android, grants competitors access to some of Google’s most sensitive data, prohibits Google’s applications and devices from favoring Google’s search engine, prohibits Google from developing a new browser and making investments in certain AI technologies, along with other conduct restrictions. The court will need to approve the proposed remedy for it to take effect.
The proposed remedy is noteworthy because weakening Google as a competitor may reduce economic growth. After all, Google is the world’s information bloodstream and an important innovator. The proposed remedy is also significant because it is a bellwether of current antitrust enforcement. It shows that antitrust enforcement agencies are pursuing extreme policies that prioritize equity among competitors over free markets and consumers. The agencies see successful firms with large market shares as an antitrust problem rather than a product of ingenuity and entrepreneurship. The agencies’ policies are attempting to undermine the most innovative firms just to make it easier for others to compete and are dissuading innovation by the very firms that are best at it. Needless to say, this is bad for consumers and economic progress.
The proposed Google remedy is a case in point. The remedy’s main idea is that, to ” restore competition,” it is necessary to weaken Google as a competitor. It does this by restricting Google’s intellectual property rights and prohibiting Google from engaging in conduct that is otherwise perfectly legal.
Forcing Google to give competitors access to proprietary data would harm innovation. It also amounts to expropriation of Google’s intellectual property. Mandated data sharing diminishes incentives to invest in data collection. Why would Google invest more in gathering data if it must share the product of that investment with competitors? Because data is the “essential raw material” for general search engines, mandatory data sharing would lower search quality. The prohibitions against developing a new web browser and investments in AI would likewise stifle innovation.
Google makes most of its profits by selling ads displayed on the search engine results page. Google’s ad revenue is a function of the number of search queries that its search engine receives. Chrome and other Google applications support Google’s search engine by feeding it search queries. Under Google’s business model, it is economical to offer Google’s applications for free because doing so helps to increase Google’s search ad revenue. However, under the proposed remedy, Google’s applications and devices would be prohibited from self-preferencing, such as defaulting to Google’s search engine over competitors’ in deciding where to route user search queries. The remedy would weaken synergy between the search engine and Google’s applications, undermining the economic rationale for making applications available for free. Thus, Google may begin to charge user fees for its popular applications such as Google Maps, Gmail, Waze, Docs, and Sheets. This would be bad for consumers.
The proposed remedy sets different rules of conduct for Google than for others to give others an advantage. It is like forcing a champion sprinter to carry a 20-pound weight to give other sprinters a chance to win the race. This Harrison Bergeron antitrust world isn’t one where consumers win.
The DOJ and state plaintiffs argue that the remedy is necessary to “pry [markets] open” by “address[ing] each of the ingredients necessary to create opportunities for competition to emerge.” But is that the right goal? Does the benefit of more entry (assuming it occurs) justify the cost of the proposed remedy? The remedy’s attempt to neutralize Google’s advantages would come at a great cost. Consumers are unlikely to be better off in a world with five low quality search engines than with one high quality search engine that costs them nothing to use. It is also unclear whether the proposed remedy would even lead to new entry. For example, Google could retain its general search engine market share with an advertising campaign convincing users to set Google as their default search engine. The suggestion that the remedy would result in new search engine competition is pure speculation.
The proposed remedy is closely related to the entrenchment theory used by antitrust enforcement agencies to challenge mergers in the 1960s and 1970s. Under this theory, merger efficiencies may harm competition by strengthening an already dominant firm, thereby entrenching it. Since then, the agencies have disavowed this theory because it harms consumers. However, the agencies have recently affirmed their support for the entrenchment theory in the 2023 Merger Guidelines. The agencies’ embrace of this theory is yet another indication that their policies aim to weaken successful firms to make it easier for others to compete.
The court should not adopt the proposed remedy as it is likely to cause far more harm than benefit. More generally, the antitrust enforcement agencies should not try to weaken competitors to create more equity in markets. The agencies should also not try to engineer specific market outcomes. They have neither the authority nor expertise to do so.
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