Tech company in court
“Breaking up hangs over Google like the sword of Damocles”
September 14, 2023, 7:51 p.m
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Will a lawsuit be Google’s downfall? The tech group is accused of cementing its market power with payments worth billions. Top economist Haucap classifies the demand for a break-up for ntv.de and explains which measures would make more sense for users.
ntv.de: As of this week, Google has had to answer in court in a US antitrust case. Experts see this as the “process of the decade” that will “decide the future of the Internet.” What makes this process so historic?
Justus Haucap: The last time a tech company, Microsoft, went to trial in the USA was 20 years ago. In this respect, it is no exaggeration to call the case against Google the ‘trial of the decade’. And the ‘future of the Internet’ will be decided in this process insofar as it is not just about Google. If the tech company loses in court, internet giants like Apple, Amazon and Facebook would certainly also have to change their behavior.
Justus Haucap is director of the Düsseldorf Institute for Competition Economics at the Heinrich Heine University Düsseldorf. From 2006 to 2014 he was a member of the Federal Government’s Monopolies Commission.
Background to the process: Google pays billions every year to device manufacturers such as Apple or to mobile operators such as AT&T so that they can offer their customers Google as their default search engine. In your view, is the tech company abusing its market power?
One can assume that this procedure will at least cement Google’s position in the market. This makes the tech company very difficult to attack for other search engine providers, such as Bing from Microsoft. Users are lazy. When certain applications are preset, the majority tend to use them. They don’t necessarily go out of their way and choose a different search engine. And that’s exactly what the US Department of Justice is accusing Google of: The tech company is using the so-called lock-in effect. Sure, Microsoft is no small shill now. The company is free to enter into similar contracts. But Bing’s market share is of course much smaller. This is certainly more difficult for Microsoft to refinance. The facts and figures are discussed intensively in court. I think it is quite unlikely that Google will emerge from the proceedings unscathed.
Google insists that the procedure is “legitimate competition” and not “unauthorized exclusion of competitors.” Is the argument coherent?
No, that’s not entirely conclusive. I think it will be difficult for Google to convince the court that the approach does not have a monopolizing effect. In competition law, a small company with a small market share has a lot of freedom. But Google is not a small company with a small market share. Quite the opposite.
The plaintiffs are not seeking a fine, but rather want to stop Google’s business practices. They therefore suggest, among other things, breaking up the group. How likely is that?
The breakup of Google hangs over the tech company like the sword of Damocles. Unbundling is always the last option. I suspect that there will be an out-of-court settlement – like in the Microsoft trial. The competition watchdog and the company could, for example, agree to stop certain practices, such as payments to device manufacturers and mobile phone operators. In this case, only a fine is of little help.
The EU is a pioneer in regulation. Keyword Digital Markets Act.
In Europe the situation is different. The Digital Markets Act already includes a wide range of requirements and regulations that are now being litigated in the US courts. Among other things, it also stipulates that default settings cannot be made so easily and that, for example, Google must also open search data to competitors.
Google has a 90 percent market share in Internet searches. How dangerous are monopolies on the Internet?
Monopolies are almost always harmful – especially for consumers. On the one hand, because they are often too expensive. This cannot be directly observed on the Internet because we apparently use it for free. And on the other hand, because they make companies less innovative. Monopolies are particularly harmful where public opinion is controlled and influenced. So, for example, at Google or Facebook.
In your opinion, does Google really need to be broken up?
The goal is consumer-friendly policies. The court must now decide: What exactly does that mean? For example, if Google has to separate from the Google Maps mapping service, then this decision will certainly make it easier for other mapping services. But it’s not necessarily a consumer-friendly solution. Many users appreciate the integrated solution. Unbundling would of course make things easier for competitors, but you have to be careful not to create solutions that are unfriendly to consumers.
What consequences would a break-up have for the company?
Unbundling always involves costs. Google will therefore try by all means possible to prevent it from being broken up and find other solutions so that the tech company does not have to turn its entire business model upside down. In a way, that has already happened. When restructuring to form Alphabet, Google has already carried out a certain amount of unbundling itself by partially separating the search engine business from other parts of the business.
We’ve already talked about it: the last time the state and a tech company argued in court over monopoly issues was 20 years ago. Does the Google trial mark a paradigm shift?
No. Skepticism towards large tech companies has grown continuously over the past five years. The Trump administration initiated the case against Google three years ago. In the USA the realization has now matured: the power of the big tech companies has become a bit too great.
Juliane Kipper spoke to Justus Haucap