Dr. Daniel Sutter: Google on trial

The U.S. Department of Justice (DOJ) antitrust case against Google over its dominance of online search is unfolding. This marks the first tech industry antitrust trial since Microsoft a quarter century ago. Does Google unfairly dominate online search?

With a market share of between 86% and 96%, Google is certainly dominant. Microsoft’s Bing is a distant second between 3% and 9%. But Google does not meet the economics definition of monopoly, which requires a single seller. This is significant because some economic models yield vigorous competition with just two sellers in a market.

Economics judges market performance against the consumer satisfaction standard, so market share alone never condemns a company. A 90% share because consumers judge Google’s product as the best is not a problem. That we now say “Google It” suggests considerable consumer satisfaction.

Some criticisms of Google exist and suggest that it may not serve customers that well. For instance, companies pay to be at the top of the search results or divine from Google’s algorithm how to be selected first. Conservatives allege a political bias.

Economists instead focus on barriers to competition, although disagreement exists over what exactly constitutes problematic barriers. Superior performance based on experience is a contentious barrier. Google’s search engine became so good because so many people used it, setting a high bar for rivals. I do not consider this a barrier because other companies’ search engines should be capable of similar learning.

Barriers created by a dominant firm are problematic. The DOJ’s case consequently focuses heavily on Google’s $10 billion a year deal with Apple to be the default search engine on the Safari browser. The DOJ contends that this reduces competition by thwarting rivals like Bing or Yahoo and possibly preventing Apple from developing its own search engine.

The ease of changing the search default is a major weakness of the DOJ’s argument. Bing is the default on many devices, but users switch to Google. As economist Thomas Hazlett argues, there’s good evidence that many folks just like Google.

Research demonstrates the importance of default settings even when switching costs are low, boosting the DOJ case. For instance, many people never reallocate funds in their 401k. The persistence of default settings, however, is a general aspect of life. And remember that Bing is often the default.

Let’s also consider Apple’s choice to make Google their default. Choosing not to satisfy customers on any element of design, quality, or cost opens the door for competitors. Apple most likely believes users prefer Google. Samsung decided to stay with Google over Bing earlier this year.

Google’s dominance has not prevented entry into the market. DuckDuckGo was founded in 2008, long after Google was dominant. DuckDuckGo has attracted significant funding and differentiates itself by prioritizing privacy.

The Google litigation is part of the Biden Administration’s aggressive antitrust policy. FTC chair Lina Khan embodies this activism. Unfortunately, aggressive antitrust enforcers have not performed well.

My favorite antitrust folly was the FTC blocking a merger between Blockbuster and Hollywood Video in 2005 it feared would dominate the home video market. The FTC missed that the transition to streaming would bankrupt both companies within six years. In fairness, Blockbuster also missed on streaming, choosing not to buy Netflix in 2000. But bureaucrats’ lack of vision gets coercively imposed on markets.

Professor Hazlett offers a great example. The Federal Communications Commission blocked cell phone development for four decades! The technology emerged after World War II but the FCC failed to see the value and make any electromagnetic spectrum available until 1970. Cell phones only emerged after 1982.

Politics also plagues antitrust policy. Campaign contributions ensure favorable treatment for politically connected firms. Laissez faire may not be the best imaginable policy, but it almost certainly outperforms political antitrust.

America Online, Netscape, and MySpace were all once giants. Consumers ultimately prevail in free markets. A company maintaining a large market share in the face of competition must serve customers better than government-directed competition.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.