Google vs. Europe, part II

I am hoping not to make a habit of this but here is another one about Google.

The European Commission confirmed today the reception of three complaints against Google. Although details of the nature of the complaints are not published yet, it is claimed that they are partly aimed at the practice of presenting (ordering) price comparison results by Google’s search engine. UK price comparison site Foundem, French legal search engine ejustice.fr, and Microsoft’s Ciao argue that the US technology company’s practice ‘serves to stifle competition and keep the cost of online advertising artificially high’. Although press sources claim that the Commission has already launched an investigation, this is not yet the case, Google has been informed about the complaints and was asked to comment on the allegations. Google’s statement has been published on its website.

If sources are right, Foundem claimed that Google’s search engine was a “mechanism for automatically inserting its own services into prominent positions within its natural search results” and “poses an immediate threat to healthy competition and innovation”. Although it is difficult to say anything without knowing more of the details, my first impression is that this part of the complaint may be a simple case of vertical integration with competition downstream.

Here the upstream (near) monopoly firm is Google’s search engine (with around 85% of the market), and the downstream market is that of price comparison websites (their downstream nature comes from the fact that people use the upstream service, i.e. the search engine, to find the downstream price comparison site). The claimans argue, that Google is showing its integrated downstream price comparison results at the top of pages. But what would happen if the Commission followed the claimants and Google was stopped from doing this? Google would possibly start charging for the prominent top-of-the-page spot, and being in a near monopoly situation, could be able to price well above marginal costs. Therefore it is easy to see that an ill placed intervention by the Commission could mean, that the current situation, where the top of the page spot is given to Goggle’s own integrated price comparison firm at marginal costs (which in this case is virtually zero), would be replaced by another one, where for the same priority spot price comparison firms would be charged a higher than zero price resulting in a welfare loss.

It is not a coincidence that among the claimants are Microsoft’s price comparison site, Ciao, knowing that not only Microsoft has long been trying to penetrate the search engine market (Microsoft’s Bing has now around 5-6% of the market), but it also sees Google as a potential threat in the market of operating systems in the long run, where Google has already made some progress by introducing Google Chrome OS (at the first stage primarily designed for netbooks, with the aim of expanding onto PCs).

The ball is on the Commission’s side now. Knowing that the current regulatory climate (at least on the level of some of the strongest member states) has not embraced Google and the business policy it represents, I have a slight worry that this case might go beyond what an independent competition enforcer’s mandate should allow them to do.

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