Thought leadership from our experts

Antitrust remedy or Christmas bonus?

It has, without a doubt, been the antitrust case to watch over the last seven years: the European Commission's antitrust investigation of Google's Shopping service.

June 2017 finally saw the Commission making its Decision, including a record-breaking fine and an order to end discriminatory behaviour. Google has now appealed the decision, on its effects if not its dominance in search, and is allegedly implementing its proposed remedy in the meantime. The Commission found that Google was abusing its search service to give itself an illegal advantage:

 

Prior to the remedy, a Google search for an item which might produce a shopping result would result in a page of search results, with a box at the top showing Google Shopping results, with images of the products included. Essentially, Google's proposed remedy is to have this eye-catching box at the top include links to different CSSs (Comparison Shopping Services). Places in the box will be secured through an auction process, in which CSSs bid alongside Google Shopping.

Google Shopping will apparently be run separately, to ensure its bids for slots reflect its own operating costs, without subsidy from Google as a larger organisation. Google says that this will mean that Google Shopping is operating on a level playing field with other CSSs. We understand from press sources that Google's proposed the following as its remedy:

From the screen shot to the right it can be clearly seen that Google Shopping has two slots, with three being shared by competing CSSs: it may be questioned whether this is in and of itself non-discriminatory treatment.

How has the remedy been received in the market?

Bloomberg has highlighted how the current remedy "mirrors" what was suggested at a settlement in 2013.1 In 2013, settlement attempts were abandoned amid outcry from companies that depend on search for web traffic claiming it would drive up costs. Sources suggest that a draft EU Parliament report on competition argues that the Commission should take a tougher stance on Google, with EU parliamentarian Roman Tremosa I Balcells arguing that an "auction-based approach cannot deliver equal treatment".2

 

To quote Josh Marshall's Talking Points Memo, "Google's monopoly control is almost comically great. It's a monopoly at every conceivable turn and consistently uses that market power to deepen its hold and increase its profits."3

Richard Stables, CEO of Kelkoo, a competing CSS, has argued that anyone who thinks this remedy will resolve the issues at play "doesn't understand how the market works."4

Another CSS, Foundem, one of the original complainants against Google, has said that the auction for the slots actually creates "an additional anti-competitive barrier".5

Foundem argues that this is because the economics of an oversubscribed auction compels participants to bid away the majority of their anticipated profits to Google, as per figure 1 below.6

Figure 1

 

As such, Foundem is of the view that the auction proposal which Google is now implementing will inevitably lead to "monopolistic profiteering".7

Essentially, so the argument goes, the remedy as proposed simply creates a new revenue stream for Google, inflating costs across the industry while delivering a hefty Christmas bonus to the infringer.

When is a remedy a remedy?

Maurice Stucke, Co-Founder of Konkurrenz Group, has indicated concerns that the Commission's prohibition decision will not work: "merely telling them 'you can't do this in the future'" may not be sufficient as "Now they have such an inherent advantage that even if they don't engage in this behaviour, they still win."

Foundem has raised one potential compromise solution of introducing a capped bid price, limited to Google Inc's cost recoupment, as shown in Figure 2.

Figure 2

 

Even with a bid-price cap, Google's approach still favours Google Shopping as it has direct relationships with advertisers. To be a remedy for third parties a case can also be made that Google Shopping should not be self-promoted into the rankings, as doing so does not provide redress to the competitive distortions already experienced and does nothing to address Google's accumulated benefits from its breaches of the law. Much depends on the detail of the Commission decision which, at the time of writing has yet to be published.

Has Google stopped its illegal conduct?

In its press statement announcing the decision, the Commission said that it is "Google's sole responsibility to ensure compliance" and it must "stop its illegal conduct within 90 days of the decision." Google has implemented the remedy described above, but has this stopped its illegal conduct? Google's approach still means consumers won't necessarily be shown the most relevant results, argues Agustin Reyna of the European consumers' organisation BEUC.8 The results shown also won't necessarily be the cheapest available to consumers on the internet.

It may be that Google is genuinely trying to address the problem, but, as Josh Marshall highlights, "Google is so vast and all pervasive that it can be dangerous even when it's not trying to be."9 Does such an entrenched, almost institutionalised, advantage require something more akin to positive discrimination to provide equality of opportunity for products using the platform? Google Search has over 90% of the market in the EU. From the summary of its appeal before the Court of Justice, Google is challenging some Commission findings but may now have accepted it is dominant. Where a platform is dominant, competition for products using that platform will need intervention to ensure that the playing field is truly level. As Margrethe Vestager has argued, if we want free markets, we must understand "the paradox of free markets which is that sometimes we have to intervene."10


  1. Aoife White, "Google offers sale of shopping links to appease EU", Bloomberg 18 September 2017
  2. Lewis Crofts, "Google antitrust isn't good enough, draft EU parliament report says, MLex 24 October 2017
  3. Josh Marshall, "A Serf on Google's Farm", Talking Points Memo 10 June 2017
  4. Aoife White, "Google to create shopping service unit to satisfy EU", Bloomberg 26 September 2017
  5. Aoife White, "Google to create shopping service unit to satisfy EU", Bloomberg 26 September 2017
  6. http://www.foundem.co.uk/fmedia/Foundem_Sep_2017_Undead_Auction/
  7. http://www.foundem.co.uk/fmedia/Foundem_Nov_2017_Undead_Auction_Part_2/
  8. Bloomberg article 18.09.2017
  9. Josh Marshall, "A Serf on Google's Farm", Talking Points Memo 10 June 2017
  10. https://www.competitionpolicyinternational.com/eu-vestager-singles-out-google-facebook-and-apple-for-abusing-dominance/