Nova workboard

a blog from young economists at Nova SBE

IN REPLY TO: “Google and Competition in Europe”

Some days ago, there were some developments in Google’s case.  Before the identification of those developments and of their main driving forces, let me make a better contextualization of the case (it can be valuable to understand the “news”).

The first steps of this complex process were given in February 2010 when the European Commission notified the Google that it has received complaints from three companies (British price comparison site Foundem, Microsoft’s Ciao!, French search engine ejustice.fr!). Some months later, in November 2010, the EC initiated an investigation, looking into 18 formal complaints against Google’s practices. The preliminary conclusions indicated the four antitrust concerns which are well summarized in Ana’s post. Approximately four years after the beginning of the story (and one year after this post!), Google has agreed to a settlement with the EC.

Basically, in the beginning of February 2014, Google agreed to make concessions on how it displays competitors’ links on its website (regarding the other concerns the EC has already accepted their concessions). Additionally, the agreement is valid for 5 years. As consequence, Google avoided a in-deep investigation which could have resulted in a fine of up to 3.5 billion euros (!). Who were the winners with this deal? Maybe we can find several “winners”.

Although initially denying the allegations, Google accepted the deal. Can we understand this decision? Let’s start with the most obvious reason: they avoided the risk of a €3.5bn fine (and the possible consequences of it).  They also escaped from a court battle which could take several years and employ a vast number of resources. Furthermore, they escaped from a finding of wrongdoing. We should not think only about monetary costs, but also indirect costs such as reputation costs.  Additionally, they do not have to make major modifications in other products or in the structure of the company. But, in my opinion, the main achievement of google was that they have not to give access to regulators to their secret algorithm.  Don´t forget: “secrecy is the foul of business” and in this case the algorithm is the Google’s “crown jewel”. Considering all these reasons, I can only conclude that Google achieved a victory.

On the other hand, the EC also reached a victory. It is known that a finding of anticompetitive practices in this case could result in a record fine but we have to be aware of the consequences and risks of an investigation and a court battle. Firstly, the EC would have to employ large part of its resources in the investigation. Additionally, the end of investigation was unpredictable: they would face the risk of a final decision without the desired changes.  Even with a favorable decision, they would have to subject consumers to the current harmful practices until the final decision (how many more years would it be?). With this agreement, the EC not only avoided the annoyances and the risks of a court battle, but they also ensured that some changes will be made ​​in a very short period, benefiting the consumers.

I have already discussed about the effects for Google and consumers (who are protected by the European law). What about competitors? The deal did not satisfy the competitors, even thinking that it will produce positive effects in a rivals’ view. David Wood (at the lobby group which accounts five complaints, including Microsoft) said “Without a third-party review, Almunia risks having the wool pulled over his eyes by Google”[1].

Joaquín Almunia, EC vice-president in charge of antitrust policy, gave a statement that can work as an answer: “my mission is to protect competition to the benefit of consumers, not competitors. I believe that the new proposal obtained from Google after long and difficult talks can now address the Commission’s concerns. (…) This way, both Google and its rivals will be able and encouraged to innovate and improve their offerings.”[2].

Basically, the EC is only concerned with consumers’ interests, as stated in the Treaty on Functioning of the European Union. This makes sense but requires a deeper evaluation of the measures included in the settlement (this would matter to another post). To conclude, assuming that the measures really solve the EC concerns, it seems that all parties can benefit from the agreement (even competitors, although they wanted to take more benefit from it). Finally, the story seems to have ended.

PS: Google is facing a second EC investigation, regarding the Android operating system for smartphones (two out of three smartphones work with this system), which may have bigger risks for the company.

Filipe Silvério #617

Blog: Google and Competition in Europe (Author: Ana Santos)
Available at: https://novaworkboard.wordpress.com/2013/04/28/google-and-competition-in-europe/
Date: April 28, 2013

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Author: studentnovasbe

Master student in Nova Sbe

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