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The FTC’s Missed Opportunity on Google

By the Editors
January 03, 2013 3:05 PM EST
Google
Google

For almost two years, the U.S. Federal Trade Commission has been investigating allegations that Google Inc. (GOOG) unfairly dominates the Internet search market. The consumer agency ended the case today without bringing charges over the main issue -- whether Google favors its own products in search results and, consequently, stifles competition.

The FTC missed an opportunity to explore publicly one of the paramount questions of our day: Is Google abusing its role as gatekeeper to the digital economy? Lawmakers, economists, other regulators and consumers should all be in on this important debate over whether Google is leveraging its overwhelming dominance of search into unassailable market power in other areas.

There is some evidence it is. When a consumer looks for flights on Google, the search engine first provides a short list of airfares offered by Google’s advertisers. Next comes a “Google flight search” box listing the major carriers and their prices. Only after that do online travel services, including Expedia, Kayak and TripAdvisor, appear. They often provide less expensive fares, yet require more time filtering through numerous options.

As far as Google is concerned, it’s making life easier for searchers by listing its service first, and those wishing to use the discounters are free to keep clicking.

Shopping Around

Price comparison websites are another example. Such services, in existence since the 1990s, are highly dependent on Google, by far the dominant search engine in the U.S. and Europe, to bring potential customers to them. Google’s own shopping service, Google Shopping, caught on slowly (it was originally called “Google Product Search”) until Google began inserting its own price-comparison site near the top of Google search results, pushing down competitors’ listings and thus reducing chances that a consumer would click on them.

Google claims not to be gaming its algorithms to favor its own services. Yet at a Senate hearing a year ago, Chairman Eric Schmidt said this: “We give preference in the context of our best judgment as to the sum of what the person wants to do.”

In other words, Google assumes that consumers who search for TV prices or airfares don’t want to be directed to yet another search engine. As Google posted on its blog today, its so-called specialized search results “can save you the hassle by providing direct answers to your questions” before providing links to other sites. The strategy has worked: Google Shopping ranks among the highest product sites, while traffic to rivals, including Nextag, Shopper.com and PriceGrabber, has plummeted.

Fair or unfair? The FTC, in considering that Internet search is free and that many alternatives are just a click away, voted unanimously not to bring a search-bias case. Still, legal experts are split over whether Google’s practices violate antitrust statutes. Google may not have an obligation under existing law to neutrally direct Internet traffic, but that could be because lawmakers never envisioned that one company would emerge as a public utility of sorts for e-commerce.

The European Union’s competition authority, meanwhile, is running a similar investigation and may soon accomplish what the FTC concluded it should not. Google committed to the EU last month that it would outline changes to the way it displays its own services in search results “as compared to services of competitors.”

Pushing Back

State attorneys general, consumer advocates and some lawmakers may push back against the FTC. Google’s competitors, notably Microsoft Corp. (MSFT), which hopes to use the same antitrust laws that were used against it in the 1990s against its biggest rival now, are also likely to be livid.

The commission’s job, however, is to safeguard consumers, not corporate rivals. U.S. antitrust laws don’t give trustbusters the authority to protect competitors, as European Union law does. Still, at the root of the case, on both sides of the Atlantic, is the same vital issue: Is Google thwarting competition and thereby limiting consumer choice and reaping the benefit? If so, it’s up to the FTC to invoke relevant antitrust laws and make it stop.

Ask yourself this simple question: Am I harmed when rival services, whether for product comparisons, hotel bookings, airfares, restaurant reviews or maps, go out of business because they can’t compete with Google? We suspect the answer is yes.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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