Chillin'Competition

Despite intense media coverage, little has filtered on the content of the EU Google investigation.

That said, the fragments that leaked in the press led me to draw a puzzling analogy: would the ongoing EU Google case be a rerun of the Microsoft tying cases (2004 and 2009)?

Take a look: in Microsoft, the Redmond giant was accused of using its dominant facility – Windows OS for PC – to preferentially distribute related softwares – WMP and IE – and exclude rivals from those later markets. And this strategy could work effectively because consumers are lazy animals often satisfied with default or automatic settings. For various reasons – which included barriers to searching, choosing, and installing a competing software which could stem from a lack of technical skills or simply because of hassle costs – the Commission explained that users only rarely looked for better alternatives. This phenonemon had been labelled “end-users’ inertia“. For more on this, see my paper with my assistant N. Neyrinck.

Now,  the search discrimination allegations levied against Google look strikingly similar. To frame them simply: Google seems accused of using its dominant facility – its well-known search engine – to preferentially display links to related services – Google maps, Google News, Gmail, Google Finance, Youtube, etc. – and exclude rivals from those markets. Interestingly, a key aspect of the theory of harm seems based on the fact that users disproportionately click on the first links displayed by Google’s search engine, and only rarely click on links that rank lower (see chart below). In other words, search users are also lazy creatures who fail to compare the full range of alternatives displayed on the screen. A study found on the web suggests that 94% of users click on a first page result and less than 6% actually click to the second page and selecting a result displayed there.

But, there’s a key, critical difference between the two cases. In so far as the Microsoft case is concerned, offering pre-installed related softwares was a natural business strategy for MSFT. After all, the OS and related sofwares – which came for free BTW – are complements. The pre-installation of such softwares enriched the functionality of the OS, which was in the consumers’ best  interest. This argument, which has been made time and time again ties in with the traditional shoe&laces/car&radio metaphors. But what is more is that in the browser case, the pre-installation was a necessary evil. Absent a readily available Internet browser, consumers indeed could not access the Internet and in turn download competing software. Now, some may counterargue that the problem stemmed from the fact that the pre-installed softwares were Microsoft’s own products. But how could it be any different? Given the number of complementary softwares running on an OS, and the myriad of alternatives for each software, it would be all to weird, and possibly unworkable, to enjoin dominant software companies to pre-install competing products on their own motion: how to select them? in what range? on what terms?

In the Google case, however, the preferential ranking of Google’s related services is NO natural business strategy. Rather, the allegation concocted by the complainants, and possibly endorsed by the Commission, is that Google artificially fiddles with its algorithm to display links to its own related services on top of search results pages. In the “but for” search engine world – i.e. absent algorithm manipulation – Google’s related services would not systematically over-rank competing services (yet consumers would still enjoy links to complementary services).  Contrary to Microsoft, there is here no clear objective, natural justification to what Google is allegedly doing. This, in my opinion, makes the Google case different from, and possibly a tad bit stronger than, the Microsoft case.

PS: With this background, I feel a sense of compassion for Microsoft’s lawyers.  Since 2004 and 2009, they must be in real trouble,  trying to understand how, and to what extent, complementary softwares can be pre-installed on Windows.

There’s competition policy everywhere (Alfonso was there before BTW).

Last Saturday, at the Grain d’Orge – in passing, the best blues music bar of Brussels – I was confronted with a real-life example of a deadweight loss.

Orval, the famous brewery that produces the eponym Trappist beer is currently reducing, and in some cases has stopped, supplying  domestic Belgian retailers (i.e. bars and other retail channels).

The explainer: Trappist beers are a very trendy export product. They now sell at comparatively higher prices in big metropolis like New York, Hong Kong, etc. Orval, which is reported to have fixed short-term capacity, has therefore decided to prioritize supplies towards high price, export markets, and to limit quantities sold in Belgium. Belgian bars and restaurants, whose reservation price still remains superior to Orval’s costs, are thus excluded from consumption as in the textbook model of monopoly pricing.

Interestingly, it seems that some quantities of Orval can be sourced on a secondary market, where bars with surplus resell to other bars.

Is this refusal to supply akin to unlawful abuse? Undeniably, a funny question, which could be an exam topic for my LL.M students. Market definition on such a highly differentiated product market is not straigthforward. And whilst this type of refusal to supply does not seem to fall within the good old ‘essential facilities‘ doctrine, it has exploitative effects which in theory are caught under Article 102 TFEU.