DOJ anti-trust ruling on Google ignores the reality of exclusive contracts

On Aug. 5, U.S. District Judge Amit Meta released a Department of Justice (DOJ) ruling against Google, which sets a dangerous precedent that could potentially hinder a common business practice in many industries, signaling a shift in antitrust policy that could negatively impact economic growth. 

The facts state that Google pays Apple roughly $20 billion per year to be the search engine default in Apple’s marquee browser, Safari. The high price tag and Google’s large market share caught the ire of federal antitrust regulators, who argued that the payments were effectively preventing competition, resulting in Google’s persistently high market share. By singling out Google’s behavior as harmful, the court sets a precedent that could hinder legitimate business practices common in both online and offline markets.

Paying for privileged status is a routine, lawful, and often beneficial strategy employed by businesses to gain visibility and drive sales. Regardless, as the court will admit, these tactics are only valuable when the product is of sufficient quality to actually attract customers. To argue that Google’s payments are anticompetitive ignores the broader context in which such transactions occur and fails to appreciate the options that remain available to consumers.

Consider the example of product placement in retail stores, a practice deeply entrenched in the business world. Consumer goods companies routinely pay retailers for prime shelf space — often at eye level — to increase the visibility of their products. Consumers retain the freedom to choose alternative products, even if those products are less prominently displayed. The ability to pay “slotting fees” for prime shelf space does not guarantee a sale; it simply enhances the likelihood of consumer engagement. The court’s decision against Google fails to account for this dynamic. Just as consumers can walk past a product at eye level and choose something else, they can just as easily change their default search engine.

Beverage companies negotiate exclusive contracts with restaurants, schools, stadiums, and other establishments. If consumers don’t like the soda beverage options, they drink alternative beverages like water or go to different venues that offer the experience they seek. This, in turn, would drive more competition for the contract itself as other more reputable brands try to fill that void. The existence of exclusive contracts does not mean that consumers are harmed or that such contracts forgo competition. 

The main difference is that no soda beverage company maintains as high a market share as Google, but that shouldn’t matter as long as there is competition for the contract and no demonstrable consumer harm. Antitrust enforcement has never taken high market share as inherently indicative of anticompetitive behavior but rather has focused on consumer welfare. The market for search engines remains competitive, with Bing, DuckDuckGo, Yahoo! (once the top search engine to beat) and other options available to consumers, and many of those companies are bidding on the same contract as Google. The notion that Google’s payments have somehow stifled all competition ignores the presence of these alternatives and the fact that consumers are increasingly aware of and able to exercise their choices. 

The court’s decision fails to acknowledge that consumer behavior is not dictated solely by defaults. Users have shown a willingness to change search defaults when they perceive the alternative to be superior, whether due to privacy concerns, performance, or other factors. The existence of these alternatives and the ability of consumers to choose them should be sufficient evidence that the market remains competitive. 

As Geoffrey Manne, President and Founder of the International Center for Law and Economics, notes in his review of the case, “Google’s default agreements can’t be deemed to have caused anticompetitive harm because defaults are readily overcome by high-quality, reputable alternatives.” 

The ruling itself even acknowledges that there was no “price that Microsoft could ever offer Apple to make the switch because of Bing’s inferior quality.” In other words, the price of the contract and Google’s market share are irrelevant because there is no other product that matches the quality of its search. Consumers clearly have options when it comes to search, but because they consistently choose one product over the other does not mean that the exclusive contracts indicate anticompetitive behavior. Companies invest in marketing, partnerships, and product placements to increase their visibility and, ultimately, their revenue. This is not anti-competitive; it is the essence of competition.  

The DOJ’s aggressive approach could have broad economic implications. If businesses are discouraged from investing in securing market positions due to fear of antitrust repercussions, we could see a reduction in advertising spending, marketing partnerships, and other forms of competitive economic behavior. This would hurt not only the companies themselves but also the industries that rely on such spending, from advertising agencies to retail chains. It could also harm consumers by raising prices since distributors would no longer have the subsidy of the contract to help lower the price for consumers. The ripple effects could be far-reaching, dampening economic activity in sectors that depend on the flow of investment from businesses seeking to enhance their market presence.

In conclusion, the court’s decision to penalize Google for its payments to Apple as part of securing the default search engine position on Safari is a narrow interpretation of competitive behavior that fails to account for the broader business practices prevalent across various sectors. Paying for privileged positions is a common strategy employed by businesses to enhance visibility and drive sales, whether in retail, advertising, or digital markets. These payments do not inherently stifle competition; instead, they represent a legitimate and often beneficial investment. 

If anything, Google’s payments to Apple for default placement on Safari are akin to a company paying for a prime billboard spot. It’s about visibility, not coercion. The court should recognize these facts during the ensuing appeals process.

A version of this column first appeared on AIER.org.

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