European Regulators v. Google: What's at Stake?

SMITH BRAIN TRUST -- The European Union's top anti-trust authority appears on the verge of taking aggressive steps against Google. Rivals say the tech giant doctors its search results so that, say, a customer searching for flights will come across Google's flight-search tool before it hits rival services, even when those rivals are more popular. Likewise for hotel-search services, insurance-price comparison sites, and so on. As Google offers more and more services that compete with those of other companies, the concern is becoming more acute.

Similar claims have been made in the U.S., but the European Commission has signaled that it's likely to be more aggressive than the U.S. Federal Trade Commission in regulating Google. Google's market share in Europe, 90 percent, is even higher than in the U.S., where it's about 75 percent.

Work by Bill Rand, an assistant professor at the Smith School and the director of Smith's Center for Complexity in Business, has shown how, even in the absence of search-rigging, a monopolistic search engine can warp corporate competition—creating "hypercompetition." 

"In a world in which there is an aggregator it becomes more and more of an all-or-nothing game," he says.

Imagine, he proposes, that in the market for selling hotel rooms in Las Vegas TripAdvisor is prevailing, but Expedia is a solid No. 2. "In a world in which there's no strong Google, Expedia should keep competing in that space. They are still going to gain some traction because they are almost as good as TripAdvisor. But when you move to a world in which there's someone essentially pointing and saying, 'This is the best place to get hotels for Las Vegas'—the role Google plays—all of a sudden it no longer makes sense for Expedia to compete in that space. People are going to Google 'Las Vegas hotels' and they're going to click on the first link, almost inevitably."

Under those conditions, Expedia then has two options: "One is they can expend a lot of resources to make up that incremental difference between them and TripAdvisor, or they can remove themselves from that competition completely." Because businesses are under pressure not to concede markets, they are likely to strive to close the gap.  As a result, everyone ends up spending more than they would otherwise—to gain, or maintain, that No.1 slot in the search rankings.

And that's a dominant search engine that doesn't game its results. Google, for its part, claims that its results are neutral and unbiased, but regulators don't seem inclined to take them at their word. "If you could recognize an honest broker that would say that Google's organic search capabilities genuinely are neutral then a lot of these questions go away," Rand says. " …. You could imagine [the European Commission] embedding an overseer into Google search where they try to audit whether the google search is remaining neutral." (In the United States, the FTC did something similar, monitoring privacy policies at Google after users complained that their data was mishandled in the early days of the now-defunct Google Buzz.)

Some Google critics have proposed that search be "decoupled" from Google's other products, but search is so entwined with services like Mail and Calendar that this is difficult to imagine, Rand says. Both search and those services would lose value if separated. Nonetheless, Rand wouldn't be surprised to see aggressive action from the European regulators.

"I don't think they are going to settle, and I think they are probably going to take a very negative view of Google," he says. And, he points out, the Europeans have already revealed just how aggressive they can be: "The 'Right to Forget' laws showed that they were able to come up with powerful remedies for things that people thought were infeasible. Removing search results is not something that anyone thought would actually happen until right to forget laws came through."

Don't be surprised if European regulators administer similarly strong medicine this time.

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