Mediaboss Marketing

The long running investigations by the European Union into Google Google and the company activities have taken another twist. Now the EU is insisting that unless Google comes up with a better settlement offer there will be a more formal investigation and that could lead to a fine of as much as $6 billion: 10% of the firms annual, global, turnover. However, weve a serious problem here: no one has managed to show as yet that Google actually deserves a fine of anything. Not only that no one has as yet managed to show that Google has done anything wrong at all. Our collective problem here is that the EU itself doesnt seem to be sure about what monopolies are and why theyre generally undesirable things.

Theres one thing we can all agree upon: in many European markets (but not all, including the Czech one that I happen to be sitting in right now) Google is the dominant search engine.

In a dramatic change of position, Joaqun Almunia, the ECs competition commissioner, told the European parliament that unless Google altered its offer to settle complaints, it could face a statement of objections, the formal path towards a fine that could equate to 10% of the companys global revenue, or about $6bn (3.7bn). Google controls more than 90% of the online search market in Europe, substantially more than in the US where it was cleared by the US federal trade commission in January 2013 of favouring its own searches to the detriment of consumers.

OK, thats certainly a dominant position. And its always worth having a look at market players with such dominant positions. For the temptation is for those who possess such to exploit their dominance to the detriment of consumers. Perhaps by limiting production to drive up prices and thus enjoy monopoly profits. Or to crush any competition that tries to arise. But note that its not the near monopoly, of the dominant position itself, that is the problem. It is the attempt to exploit such situations to the detriment of the consumer that is. And we dont actually have any evidence that Google is doing that:

The FTC said that any such favouring helped users.

Thats a bit of a difficult decision given the EUs plans. For weve a number of things here: Googles dominant position, yes, thats there. Do they favour their own services? Maybe, maybe not: but that isnt the issue at all. And their activities most certainly harm their competitors: thats how they got that dominant position after all, by taking search volume from the other players. But we dont care about that at all either. Obviously the shareholders and managements of those other players do but as a matter of public policy were only interested in whether the exploitation of a monopoly reduces consumer welfare. If, as the FTC concluded, Googles activities actually aid consumers then were just fine with what its doing.

And thats where our problem lies. The EU is proceeding on the basis that the mere existence of a dominant position must be regulated and possibly punished. Of course all of the competitors think this is just fine. But that isnt in fact what the correct course of action is. We need proof that consumer welfare is being damaged by the exercise of that dominance before we get to that stage. Thats something we dont have as yet, may never have, and so theres not any justification for the EUs current threats. Weve also a larger problem here as well of course. If one of the worlds two major anti-trust authorities doesnt actually understand the basics of what anti-trust oversight should be, well, yes, I think thats a fairly significant problem.

My latest book is 20 Economics Fallacies At Amazon or Amazon UK.

Here is the original post:
The Problem With Google's Potential $6 Billion European Union Fine