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It’s easy enough to find information on what the US Department of Justice is doing with its antitrust suit against Google. What is more difficult to discover is the underlying issue being argued over. That is, why is what’s being done, being done? The short answer is that there’s an argument over what the definition of “harm” is.
As with Bill Clinton and the definition of what “is” is, this can seem more than a little persnickety and even casuistic – certainly excessively lawyerly. However, the discussion is at the very heart of how government should regulate the economy.
The starting point is that monopolies are bad, m’kay? Someone who owns a market is able to rip off consumers, delay innovation, unfairly close down competition and generally act like an economic thug.
Someone with market power is able to do this a bit, dependent on how much power they have. This is not at issue. The question is: how do we identify such a state? When does someone have such power?
One answer could be that when we see someone acting as an economic thug, we take that as the proof of economic power that must be curtailed. Another is that if such behaviour is possible, then a government remedy must also be applied. Say, breaking up the company, regulating it, or generally removing the ability to perform the rip-off act. That first scenario is usually allied with a generally free market worldview, that second with a more legally interventionist one. Not wholly and exactly, but generally so.
One complication with the “intervene if economic power is possible” argument is that so too is the curtailment of it by potential competition. This is known as the “contestable monopoly” argument. Yes, someone owning a market can rip off the consumer. But what if the act of trying to rip them off creates competition that breaks the market power? Then, despite seemingly having the ability, the company doesn’t, because any attempt at taking advantage leads to the loss of the ability to do so.
This isn’t some academic perchance either. China used to produce 95% of the world’s rare earths, then, in 2010, it started to throw that weight around, raising prices and limiting supply. It had all the appearances of being able to do this successfully, and yet five years later rare earths were cheaper than at the starting point. The attempt to exercise the power had brought forth the very competition that broke the power.
It is also an accepted reality that at times a monopoly is the efficient producer – that is, of most benefit to consumers. This is obviously so of “natural monopolies” like the electricity grid or sewage pipes. But it can also be true of markets where network effects exist.
We’re all on Facebook because everyone else is on Facebook – it’s generally accepted that even with free entry and exit, an entirely open marketscape, one social network is going to become dominant in this manner.
This is actually one of the general complaints about Google, regardless of the US antitrust move. By being the dominant search engine it gets to refine its algorithms, which makes competition harder – so, we must regulate. But if algorithms get better, then isn’t this the dominant position working to the consumers’ advantage?
Thus the two views. Where there is observable consumer harm then by all means break up, regulate. Even former federal judge Robert Bork, largely the originator of this modern dryly free market view, thought that Microsoft should have been broken up, although, to be fair, he was giving evidence for Netscape at the time.
It’s possible to get even drier, as Bork himself did at times, and point out that every monopoly gets overthrown by technological change in time. Although that view does put an awful lot of weight upon “in time”. Control of the waters of the Nile kept the Pharaohs in charge for millennia.
Unconstrained by regulation
The opposing view, that just the existence of a centre of economic power requires regulation, is both the older one – this is how Standard Oil’s break up was justified, kerosene prices kept going down as John D Rockefeller extended his market power – and the one many would like to reimpose.
It’s possible, but not necessary, to be as cynical as I am about this. Which is to observe that there are those who wish to gain political and economic power and regulating large companies that aren’t doing any harm is sure a cute way of doing that. A support to my bleak view is that those advancing the regulation of the tech giants do tend to insist that this should apply to all actors in the economy. Anyone that is a significant source of near anything must be regulated.
This isn’t really about Google – and nor will the other likely cases be – being detrimental to the consumer. Because there’s pretty much no proof that the company is. It’s about whether the tech giant might be if left unconstrained, if we’re to be charitable about it, and whether a big bad company and source of economic power should remain unregulated by politics, if we’re to be unkind.
The economics, well, I’ve made my view clear, our judgement should be about actual, provable, direct harm. But the alternative, bewaring of the potential for it, is economically justifiable even if a bit too cutely politically convenient for some tastes.
There is, though, one argument we can definitively reject. Newspapers are indeed losing business and advertising, and many are going bust as a result. This is not, though, anything to do with Google nor their irruption into the advertising world. For it was the classified ads which were the bedrock of newspaper finances in the US – for the UK for local papers, the nationals rarely carrying much – and the classifieds aren’t now at Google. They’re at eBay, or for jobs at Monster and Glassdoor. Many others are at Craigslist.
That Google must be broken up to save newspapers just isn’t a valid argument, therefore – even if the definition of what is the harm which justifies breaking up centres of economic power is the political argument at the root of all of this.