In the fall of 2012 the staff at the Federal Trade Commission had concluded that Google had engaged in unfair competition by favoring its own services over those of its competitors. As the Wall Street Journal reported, the staff had recommended an enforcement action: “The 160-page critique, which was supposed to remain private but was inadvertently disclosed in an open-records request, concluded that Google’s ‘conduct has resulted — and will result — in real harm to consumers.’ ”
But the political appointees overrode the staff recommendation, an action rarely taken by the FTC (though at the same time they won concessions from Google to cease key anti-competitive behaviors). The Journal pointed out that Google, whose executives donated more money to the Obama campaign than any company, had held scores of meetings at the White House between the time the staff filed its report and the ultimate decision to drop the enforcement action.
This week, the European Union’s antitrust authorities fined Google a record $2.7 billion for the exact same sort of infractions that the FTC staff had been reviewing. Why were Europeans more willing to combat Big Tech monopolies than Americans? The answer lies in both the way libertarian economic thinking has changed American views of antitrust and in the problem of regulatory capture. Has Google gotten so big that both politicians and regulators are scared of the tech giant?
Google has 88 percent market share in search and search-related advertising. It is clearly a monopoly, and it acts like one: As one of the complainants in both the FTC and E.U. cases, Yelp chief executive Jeremy Stoppelman testified in September of 2011 before the Senate antitrust subcommittee: “Google first began taking our content without permission a year ago. Despite public and private protests, Google gave the ultimatum that only a monopolist can give: In order to appear in web search you must allow us to use your content to compete against you.”
The common legal view of antitrust, as enumerated by Justice Louis Brandeis in his 1934 paper, “The Curse of Bigness,” was framed around protecting the smaller business from the predations of the giant firm. As Brandeis wrote, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.”
But in the early 1980s, the Reagan administration adopted a new view of antitrust as laid out by Robert Bork in his book, “The Antitrust Paradox.” Bork felt that if a merger did not result in higher prices, then it could be justified, even if it seemed to eliminate competition. Of course in the digital age, where Moore’s Law leads to lower prices and many ad-supported services seemed free to the consumer, it was almost impossible, using the Bork rule, to stop Google’s acquisition of YouTube or Double Click — services that led to Google’s current domination. Bork’s approach has continued through Republican and Democratic administrations.
The Wall Street Journal investigation of the dropped FTC action helps explain why. Google’s political capture of the Washington power structure is key to the reluctance of American regulators to bring the company to heel. The Journal reported 230 meetings between Google executives and the White House in the 2012-2013 period. In addition, as the Google Transparency Project has shown, 31 Google officials joined the Obama White House, executive-branch agencies or federal advisory boards.
Even though former Google CEO Eric Schmidt’s candidate Hillary Clinton lost the election, his willingness to flatter the Trump administration was on full display last week at the White House Tech Summit. “I’m absolutely convinced that during your administration there is going to be a huge explosion of new opportunities because of the platforms that are getting built in our industry. It’s going to happen soon during your leadership,” Schmidt said to Trump after the meeting, as over a dozen CEOs went around the table praising the president.
Clearly, the Europeans are not quite as in thrall to the tech moguls as the Americans. Ever since Bill Gates and Steve Jobs dominated the covers of business magazines, both politicians and journalists have lived in what Apple employees described as a “reality distortion field.” Men like Larry Page and Mark Zuckerberg are among the richest people on the planet because they understood that in an unregulated business like the Internet it was going to be a winner-takes-all game. Scale economics and the network effect (I want to be on a social network where all of my friends are) create single dominant firms in search, social networks and e-commerce. Clearly there is no market solution to Google’s monopoly. No venture capitalist is going to finance a Google killer.
Which leaves government regulators. The Europeans seem to be more resistant to Google’s lobbying power, perhaps because they have far more restrictive campaign finance laws. In addition, Europeans have been far more skeptical about the surveillance capitalism that Google and Facebook practice, in which your every move is part of their data record of your life. (Witness the “right to be forgotten,” a European legal innovation.) One could imagine a politician like German Chancellor Angela Merkel, raised under their constant surveillance of East Germany’s Stasi secret police, being rather offended by Google’s ad tech following her everywhere on the Web, just because she admired a pair of shoes. The next few months may show how the Internet monopolies react to this first salvo of regulation. Eventually, American regulators may even join the fight.
[CLARIFICATION: This article has been updated to more accurately describe the FTC’s investigation and decision about Google in 2012 and 2013.]