Google — VOICES for REASON

With a new year approaching, we looked back at some of the topics we discussed on VFR since the blog was launched. Here, we highlight a few of our favorite VFR posts that you may enjoy revisiting (or reading for the first time, if you’re a new reader).

Posts by Alex Epstein:

• Google isn’t a threat to competition–but antitrust law is.
• GovernMent propaganda
• Cash for car-wrecks
• Gut the SEC, catch the next Madoff
• Inside the mind of a financial dictator

image: flickr/myobb

The Wall Street Journal recently featured a debate on the subject of “Is Google a Monopolist?” I agree with Amit Singhal, who defends Google as an innovative company for whom “competition is literally just one click away.”  But I would like to make an additional point in response to the “Google is a monopolist” argument of Charles Rule, an attorney whose firm represents corporations suing Google. Mr. Rule contends that since some of Google’s leaders once supported the antitrust case against Microsoft for market dominance, then they should acknowledge that “Google’s overwhelming dominance” is also illegal. Rule writes: “Failing to apply antitrust rules evenhandedly–particularly to politically well-connected monopolists like Google–would neither be just nor promote the cause of free-market capitalism.”

Actually, yes it would. Ever hear of the expression “Two wrongs don’t make a right”? It was completely wrong for the government to persecute Microsoft for adding a free web browser to its wildly successful operating system, and it is completely wrong for the government to persecute Google forchoosing its own prices and terms for its market-leading advertising services. As I wrote in: “An antitrust case against Google: a threat to free competition”:

All of this talk of Google’s power makes Google sound like a menace to competition and customers. But let’s take a closer look at this power, to see where it comes from, and whether it’s good or bad.

Through incredible technical innovation and brilliant management and marketing, Google has created by far the most popular search engine on the planet, earning hundreds of millions of users. Through additional innovation, it has created the AdSense program, which has enabled millions to engage in highly profitable advertising to the user-base Google brought together. Because Google offers customers an unmatched advertising audience, it has the power to charge higher prices and demand more favorable terms than, say, a less-popular search engine can. For example, Google holds expensive auctions for top keywords. Or, to take another bugaboo of Google opponents, the company has an at-will customer policy that allows them to drop any customer at any time (such as the many outfits that have tried to defraud Google) without the onerous legal obligation to explain themselves case-by-case.

Google’s prices and terms, denigrated as “overcharging” and “unfair,” are in fact earned. And Google’s power to demand them exists only insofar as it continues to offer superior value to its competitors. The second AdSense stops making financial sense to advertisers, Google will see its so-called monopoly position disappear. Clemons and others note that it will be hard for a competitor to overtake Google in search and advertising–but that just proves how much value Google brings to the table relative to anyone else. This is grounds for admiration for being a superior competitor–not prosecution for being “anticompetitive.”

So long as Google has no power to force consumers to use its products and no power to prevent competitors from offering competing products of their own, it can pose no threat to the competitive process.

There is, however, one player in today’s market that can thwart competition: the government. By using the vast and arbitrary political power given to it by antitrust law, the government can forcibly control successful companies like Google and Microsoft, telling them what products they can sell, what markets they can enter, what prices they can charge.

As for any hypocrisy in Google’s stand, that should be resolved, not by sinning twice against free competition, but by defending it clearly and on principle. Quoting my article again:

In recent years, competition has been perverted by an embarrassing series of skirmishes in which industry leaders like Google and Microsoft defend their own dominance as being earned and beneficial, but declare that the dominance of others is “anticompetitive” and in need of government prosecution. But it’s not too late for someone to stand up on principle. So Google, Microsoft, and everyone else: “Don’t be evil.” Stand up for true freedom of competition in high-tech.

Image: Wikimedia Commons

Will Google follow in Microsoft’s footsteps and become the target of antitrust prosecution? In a recent article on the influential and popular blog TechCrunch, Wharton professor Eric Clemons argues that it could-and should.

Clemons’s argument, despite its considerable length and its use of multiple case studies and technical diagrams, can be summed up rather straightforwardly: Google is abusing the “market power” gained from its dominant search engine–by “overcharging” advertisers who want access to its search engine’s users. Clemons flatly asserts that “Google enjoys monopoly power over corporations that participate in its keyword auctions.” And: “Google is abusing its monopoly position by overcharging corporations for access to consumers.”

All of this talk of Google’s power makes Google sound like a menace to competition and customers. But let’s take a closer look at this power, to see where it comes from, and whether it’s good or bad Read the rest of this entry »

Antitrust law is based on the idea that the economic power of successful companies is a danger to the competitive process and to consumers. We must reign in or break up the most dominant companies, we are told, in the name of preserving a genuinely free, competitive market. Now, it appears antitrust advocates have their sights clearly set on a new “monopolist”: Google.

Trial balloons are being floated in important places, such as TechCrunch, the New York Times, and the Boston Globe, suggesting that Google needs to be brought down to size. In an upcoming post, I will explain why I think that Google poses no threat to competition whatsoever. Initially, though, I would like to recommend that readers check out a recent lecture of mine that is very relevant to this case: “The Monopoly Myth,” now online at the ARC website. Read the rest of this entry »