Who can be surprised that Google’s competitors are complaining to the Federal Trade Commission (FTC) about the Internet search engine and software company?
When we served as chairmen of the FTC for most of Ronald Reagan's presidency, we observed frequently the use of such "rent-seeking" - in this case, an attempt to use the levers of government to punish a competitor and gain economic advantage.
That's one reason we had a policy of seldom, if ever, commenting on whether we were looking into a company’s practices. To do so was unfair to the company and played into the hands of its competitors.
When we chaired the FTC for President Reagan, we spent much of our time steering the agency away from the excesses of the past, one of which was the FTC’s frequent meddling in matters in which it had little expertise and arguably no jurisdiction, behavior that had brought down upon it even the wrath of Congress.
Almost 30 years later, this FTC is returning to its Star Trek law enforcement policies -- that is, to boldly go where no agency has gone before. Pursuing this course would be an error.
Antitrust is for consumer welfare, not competitor welfare.
In the Reagan years, we were always suspicious of whining competitors. We were suspicious because our view of antitrust law, shaped by Robert Bork and other scholars, was, and still is, that antitrust law should maximize the welfare of consumers, not of competitors.
Has anyone heard consumers complaining about Google? We have not, probably because consumers are under no pressure to use Google. They do so because they get what they want from Google, and they get it for free.
If Google were not giving consumers useful information, they would switch, with the click of a mouse, to Bing or Yahoo for their general search needs, or to Kayak, Expedia, Orbitz, and other search engines for travel information. That’s not rocket science. Of course, even rocket science isn’t rocket science any more – except perhaps to the federal government.
The Internet is different.
Many Washington policymakers don’t seem to grasp that the Internet is essentially different from other industries. Providing consumers with the ability to search the Internet is not like the old brick and mortar businesses.
It is not an industry that changes glacially. It is instead - as most consumers know - a dynamic marketplace unlike anything in our history. The companies that lead today didn’t exist a few years ago. The companies that will lead in a year or two may not even have been started yet.
When Google was started in 1998, Yahoo was the dominant search engine – by far. Today Yahoo struggles to survive. Only a few years ago, Microsoft seemed a giant, standing astride the digital world. Today its business model is threatened, the competitive marketplace shifting under its feet from licensed software to cloud-based computing. Last year’s hot IPOs – Yelp, LinkedIn, and Groupon – didn’t even exist five years ago.
Google’s antagonists complain that no one can compete with Google because no one has the breadth and scope of Google and there are no close substitutes to the service it offers.
But what makes markets efficient is competition at the margin. Wal-Mart is big, really big: big in hardware, big in clothes, big in electronics. But even so, Wal-Mart faces competition, from the Ace hardware store down the street, from the Target across the block, from the Best Buy at the other end of town. You don’t have to be a full-line company to put pressure on the competition.
Competition works because consumers care. Whether it’s buying the newest smartphone every year or the latest app, consumers in the digital marketplace pay attention and move quickly. And they know - even if they don’t know why - that they benefit from Google’s tweaking its search algorithms more than five hundred times a year to give them a better search experience.
Most people today fail to appreciate that internet companies are different from, say, steel companies. Far too often, the federal government has gotten antitrust wrong: first in bricks and mortar (and grocery stores), now in bits and bytes. Federal authorities too frequently have had the arrogance to think it can do a better job for consumers than the market. They cannot.
In the old days, antitrust cases would drag on for years. Management’s eye was taken off serving consumers, and forced to focus on responding to regulators. That disruption of market forces was never good for consumers, but it was less detrimental in those old, slower moving days than it is in today’s fast moving economy. It may be okay to take your eye off the ball if you’re playing croquet. But don’t try it in ping-pong.
Markets work better than antitrust
There may be a place for antitrust regulation of in a fast-moving industry -- in theory. But in practice, antitrust regulation is administered by political appointees, subject, as all political appointees are, to the pressures of politics, philosophy, and the importuning of rent-seeking corporations.
Whatever the government does in response to those importuning can make life worse for consumers than whatever the market would do. It is a Washington conceit that a market imperfection can be fixed by government without cost. The unpleasant truth for federal regulators is that the market doesn’t have to work perfectly to work better than government.
James C. Miller III was chairman of the Federal Trade Commission from October 1981 to October 1985. Daniel Oliver was chairman of the FTC from April 1986 to August 1989. They are advisers to Google but their thoughts and views are their own.
