Why the Government Shouldn't Break Up Google

There's little evidence Google is ill-serving its customers. So what's the problem?

By Andrea O'Sullivan of Mercatus.

"Has Google's market dominance been a net negative for consumers and innovation—and should government antitrust regulators intervene?

Historically, Google's algorithymic innovation fueled the profitable development of ad-based internet monetization and enabled Google to invest in breakthroughs in mapping, messaging, email, smartphone, and artificial intelligence technology. If something was hot in Silicon Valley, Google probably had something to do with it, or they soon acquired the firm that did.

What was once revolutionary eventually became common technology. Now, every day, hundreds of millions of satisfied internet users enjoy a handful of free Google services that improve their lives without even really thinking about them.

Yet a growing chorus of critics argues that Google is more of an innovation-killer than an innovation-fueler, and suggests it might be time for government antitrust authorities to step in. A new New York Times Magazine article by Charles Duhigg, titled "The Case Against Google," provides a prime example.

Traditionally, arguments about antitrust and government intervention have focused on the potential costs imposed on consumers. The standard monopoly critique, as formulated in the age of Theodore Roosevelt trust-busting, was that firms could grow big enough to squelch competition and raise prices on consumers.

Competition was not necessarily valued in and of itself, but as a check on the power of firms to exploit their customers. Thus, much of the empirical debate on this issue has centered around whether powerful firms have indeed made life worse for their customers.

This "consumer welfare standard," as articulated by Robert Bork's classic work, The Antitrust Paradox, has guided American antitrust policy for decades.

But Duhigg's article notably dispenses with this line of attack altogether. Rather than simply being about "costs and benefits and fairness," Duhigg argues, antitrust policy should be primarily about "progress." And what is progress, in this new conception of antitrust? Why, it's little more than a new flavor of industrial policy, where the government is empowered to intervene and bend markets in the direction that federal lawyers believe is the way of the future. "Antitrust prosecutions," states Duhigg, "are part of how technology grows."

Duhigg concedes that there's little evidence Google is ill-serving its customers. So what's the problem?

According to the new antitrust criticism, Google's market dominance creates opportunities for the tech giant to suppress competing innovations that go unnoticed by consumers. Consumer welfare isn't "harmed," because consumers aren't cognizant about what they are missing out on. But society is made worse off overall, because we lose out on new products and services that could be even better than the market leader's current offerings.

"If you love Google," as Duhigg puts it, "you should hope the government sues it for antitrust offenses—and you should hope it happens soon, because who knows what wondrous new creations are waiting patiently in the wings."

This is an odd inversion of economist Frédéric Bastiat's point about needing to appreciate both what is seen and what is unseen in political economy. But rather than addressing the unseen effects of government intervention, this argument presses us to consider the unseen effects of a lack of government intervention. In other words: Antitrust action today ensures a new generation of antitrust actions in the future. Government meddling is just the spark that sets off a blaze of new innovations in the future.

But could such a strategy actually have the opposite of the intended effect? The curious case of vertical search service Foundem suggests this could be so.

In Duhigg's telling, this scrappy search service aimed to provide internet users with the lowest prices on specific items for sale online. Foundem's search algorithm was supposedly structured in a vastly superior way to Google's services, consistently offering a wider range of lower prices than Google's tool was able to locate. But while Foundem always ranked near the top of MSN Search and Yahoo results, it started slipping from Google search results over time.

Foundem believes that Google purposefully demoted its service from search results as an anti-competitive move to squash a more innovative competitor. Google, of course, denies that it engaged in such anti-competitive behavior. And the Federal Trade Commission (FTC), which regulates anti-competitive behavior, sided with Google, finding no clear evidence of wrongdoing.

Without more specific insider knowledge of the particulars of this case, it is difficult to pertain precisely who is at fault. What's more interesting to me, however, is how the case of Foundem seems to contradict the "antitrust as a catalyst for innovation" narrative that Duhigg crafts. A visit to the Foundem website does not leave one with the impression that the company is an impressive leader in innovation: The user interface looks like it could have been on the cutting-edge over a decade ago, and navigating through the various categories and subcategories is not exactly an exercise in ease of access.

On Twitter, the company argued that Google's 2011 Panda update prevented them from investing in design and usability updates. Perhaps this is so. But if true, can Duhigg really argue that Foundem's pivot to specialize in antitrust activities against their mammoth competitor is a catalyst for innovation? On the contrary, by Foundem's own admission on its website, the company has suspended all operation and development on its technology until they have achieved some threshold of a "level playing field" against Google through the courts, regulation, or legislation.

If Foundem's search algorithm is as revolutionary as Duhigg and the company maintain, it would be a real shame that it be hidden for lack of a full-scale regulatory push. If it isn't as good as its founders maintain, then these machinations merely amount to a costly waste and a threat to other large-scale innovators in this space.

Once viewed in this light, Duhigg's broadside against Google regarding the Foundem debacle is less clever than it initially seems. It is novel and counterintuitive to argue that government antitrust regulations actually stimulate innovation, but the case study presented to prove this point appears to suggest the opposite. The government may be very good at breaking up companies, but it is pretty hard to argue that this is a great source of dynamism."