Last week, a federal district court heard closing arguments in the government’s expansive antitrust lawsuit against Google. In the suit, the Department of Justice (DOJ), Colorado and other states allege that Google unlawfully maintains monopolies in the market for general internet searches, mainly through contracts in which computer and mobile device manufacturers agree to set Google’s search engine as the default option. Although forecasting is a perilous game, many of the court’s questions suggest that DOJ has failed to prove that Google violated the antitrust laws.
In any antitrust case, a key question is whether a company’s conduct hurt consumers, usually measured by factors such as price, output, quality and innovation. If the market reflects falling prices and rising output, and if the company is innovating and investing, those facts strongly suggest that consumers are well served, even if the company’s competitors have a hard time attracting new customers.
At the argument, the court signaled that many of these factors point in Google’s favor. For instance, Judge Amit Mehta suggested that Google has been innovating to improve its products and that the government faced a “hard road” to prove otherwise: “Nobody can dispute that search looks much differently now than it did 10-15 years ago. Much of that is attributable to Google.”
Indeed, at trial Google testified that it invests billions every year, and employs 8,000 engineers and product managers, to improve its search engine, including via AI and machine learning. The court noted that Google’s market success stems, at least in part, from its decision to invest earlier and more heavily in its search engine as compared to other companies: “That’s not anticompetitive, the fact that Google was smart enough to get on the mobile bandwagon before [others].”
Similarly, the court seemed to agree that Google’s search engine provides a high-quality product. The court noted instances where users switched their default browsers from a competitor to Google and that, during the trial, phone manufacturers testified that they periodically tested search engines, found Google’s better and chose Google as the default because of its quality.
The court asked, “isn’t that a reasonable business decision?” As the court further explained, “If I determine that defaults don’t give Google an unassailable position, don’t you [the government] lose? Have you proven that Google’s defaults are the thing that continues to allow Google to get scale?”
Beyond innovation and quality, the trial evidence also showed, seemingly conclusively, that output is expanding and that prices are falling. Prices for online advertising have fallen 40 percent since 2010, even as the market for digital advertising has expanded greatly. One national retailer, which regularly adjusts paid search spending between Google and competitors, testified that it has “observed declines in cost per click on product listing ads on Google.” A national bank testified that it more than doubled its paid search ads because ad costs and customer acquisition costs have fallen through Google’s search ads.
With strong evidence that quality, innovation and output are increasing, even as prices are falling, and with hints that the court may agree, what’s left of the government’s antitrust lawsuit? As former White House advisor Tim Wu set out, this case is really about industrial policy, specifically the government’s belief that “big is bad” and desire to dictate the number of companies that can compete in a marketplace. At one point in time, bigness alone could trigger antitrust scrutiny, but for the last 40 years, antitrust law has been about protecting consumers, not competitors. On this score, Google looks to be in very good shape.
In any event, for people concerned about online search competition, the best answer is to trust the market, rather than regulators, to improve the consumer experience. In this case, as in many others, regulators are “fighting the last war.” AI, for instance, is already changing the search market, with Google and other companies investing heavily to bring new tools to consumers and to improve the way that they gather information online. Whatever the market looks like today, it will surely change next year and the year after that. So long as the government is not allowed to punish success, Google and other companies will continue to invest, to innovate and to compete vigorously, to the benefit of all.
Asheesh Agarwal is an alumnus of the Federal Trade Commission and Department of Justice.