Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

The EU gets it partly right with its Google fine

The verdict is a mixed bagbut regardless, the EU pushing the frontiers of digital antitrust is a good thing

US President Donald Trump’s aggressive tweets aside, there is little to suggest that the European Union’s (EU’s) record $5 billion fine on Google last week was a political hitjob. Margrethe Vestager, the European commissioner for competition, had solid grounds on which to investigate the tech giant. However, her findings are a mixed bag—partly reasonable, partly overly harsh. Their most significant aspect might be what they say about the broader issue of antitrust regulation in a digital economy.

The first major finding was that Google’s insistence that phone makers pre-install its apps and services on their Android phones is anti-competitive behaviour. The focus here was on Google’s search engine and Chrome browser. The EU’s argument that this unfairly disadvantages rivals is overwrought. Given that rival browsers are just a tap or two away via Google’s app store, there is no appreciable barrier to entry for them. The oft-made comparison to the browser wars of the late 1990s and the antitrust case against Microsoft that came out of it, doesn’t withstand scrutiny. Microsoft bundled Internet Explorer (IE) for free with its Windows operating system at a time when its main rival, Netscape Navigator, had to be purchased for commercial use. This created an entirely different dynamic to the one in the Google case.

The commissioner’s logic, though, is intriguing. It is partly based on the status quo bias—the preference users have for an existing state of affairs, which holds them back from going to the trouble of downloading other browsers. Vestager has dipped her toe in behavioural economics here. This is a relatively new tool in trustbusters’ toolkits that have traditionally consisted of empirical evidence to do with collusion, predatory behaviour, mergers that would create an uncompetitive market, and the like. That said, she has set the bar too low. Antitrust authorities should not be in the business of micromanaging consumer behaviour and preferences to the extent she has here.

Vestager’s other finding that Google’s barring phone manufacturers from using unofficial or “forked" versions of Android—it doesn’t allow such versions access to its app store—is anti-competitive behaviour has more merit. There is no plausible reason for such a restriction save shutting out rivals; lacking access to the app store is a significant barrier to entry. Android currently has a thriving ecosystem of aftermarket modifications and changes to the operating system that offer improved user experiences—and this is just by tinkering around the edges. Allowing fully forked versions will boost competition and innovation to the benefit of users.

Regardless of the merits and demerits of the fine, the EU’s investigation of Google should be seen as a net positive. As this newspaper had written after Mark Zuckerberg’s testimony before the US Congress in April, the digital economy has an antitrust problem (goo.gl/2ghwqT). The existing understanding of market power and monopolies, revolving around pricing, is ill-suited to markets consisting of ostensibly free goods and services. Besides, multi-sided digital markets tend to monopoly, much like infrastructure and utilities markets, and are considerably more complex to boot. Network effects, the role of data as a source of market power, and the manner in which dominance in a digital market can enable dominance in an adjacent market are beyond the ability of traditional antitrust regulation to address.

Google is a good example of this. Assuming it loses its appeal against the verdict and is compelled to comply with Vestager’s mandates, it is still unlikely to lose its dominant position. Android is not a focus in itself for Google. Its usefulness is as a delivery mechanism for Google services. Those services, in turn, are useful primarily for the user data they scoop up. That data is Google’s prime resource in two ways. First, it enables Google to dominate the targeted advertising market, which is what fills parent company Alphabet’s coffers. Second, the more data Google has access to, the more it can refine and improve its services, which creates a loop of more users and more data to be mined. Google’s data dominance is entrenched enough for it to see off competitors in the foreseeable future.

Should trustbusters regulate such models from the get-go? How would that work in a digital economy that runs on data? How should consumer benefit be factored in? Vestager might argue that Google’s dominance in the mobile operating system space has an opportunity cost for consumers when it comes to innovative rival products—but an argument can also be made that such dominance has benefited consumers by helping to make smartphones widely accessible and providing a platform for numerous innovative apps and services. And how should behavioural economics be best employed in antitrust regulation in the future, given that the operations of, say, social media companies are built on it?

The US was the pioneer of antitrust regulation. But it is increasingly falling behind when it comes to the digital economy. The EU might be stumbling in the dark at the moment. But it is pushing the frontiers of antitrust regulation to keep pace with the changing economy. That is a good thing.

Should the EU have fined Google? Tell us at views@livemint.com

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