WHAT DOES THE CHICAGO SCHOOL TEACH ABOUT INTERNET SEARCH AND THE ANTITRUST TREATMENT OF GOOGLE? Robert H. Bork* & J. Gregory Sidak† ABSTRACT Antitrust agencies in the United States and the European Union began investigating Google’s search practices in 2010. Google’s critics have consisted mainly of its competitors, particularly Microsoft, Yelp, TripAdvisor, and other search engines. They have alleged that Google is making it more difficult for them to compete by including specialized search results in general search pages and limiting access to search inputs, including “scale,” Google content, and the Android platform. Those claims contradict real-world experiences in search. They demonstrate competitors’ efforts to compete not by investing in efficiency, quality, or innovation, but by using antitrust law to punish the successful competitor. The Chicago School of law and economics teaches—and the Supreme Court has long affirmed—that antitrust law exists to protect consumers, not competitors. Penalizing Google’s practices as anticompetitive would violate that principle, reduce dynamic competition in search, and harm the consumers that the antitrust laws are intended to protect. INTRODUCTION ................................................................................................................................. 2 I. IS GOOGLE THE GATEWAY TO THE INTERNET? .......................................................................... 4 A. The Two-Sided Market for Internet Search ....................................................................... 5 B. Google Is Not the Gateway to Content on the Internet ...................................................... 6 1. The Open Architecture of the Internet Allows Consumers to Navigate Directly to Websites .................................................................................................................. 6 2. Consumers Have Low Switching Costs Between Search Engines ............................. 7 II. DOES GOOGLE’S RANKING OF ITS SPECIALIZED SEARCH RESULTS HARM CONSUMERS? .......... 8 A. Google’s Ranking of Specialized Search Is a Product Improvement That Consumers Value .................................................................................................................................. 9 B. Google Has No Incentive to Exclude Vertical Search Providers ..................................... 10 C. Declaring Google’s Specialized Search to Be Anticompetitive and Requiring Google to Rank Specialized Search Results with the Same Algorithm Used to Rank General Search Results Would Discourage Innovation in Search ................................................. 12 D. The Essential Facilities Doctrine Does Not Support the Claim That Google’s Ranking of Its Specialized Search Results Above Competitors’ Links Is Anticompetitive ................................................................................................................ 13 1. Being Displayed at the Top of a Google Search Results Page Is Not an Essential Facility ...................................................................................................................... 13 2. An Antitrust Injunction or Consent Decree Cannot Feasibly Regulate the Price, Terms, and Conditions of Forced Access to Google’s Top Search Results .............. 16 * Former Circuit Judge of the U.S. Court of Appeals for the District of Columbia Circuit; Former Solicitor General of the United States. † Chairman, Criterion Economics, L.L.C., Washington, D.C.; Ronald Coase Professor of Law and Economics, Tilburg Law and Economics Center (TILEC), Tilburg University, The Netherlands. Email: [email protected]. Google commissioned this report, but the views expressed are solely our own. Copyright 2012 by Robert H. Bork and J. Gregory Sidak. All rights reserved. 2 Robert H. Bork & J. Gregory Sidak III. DOES GOOGLE DEPRIVE COMPETITORS OF THE NECESSARY SCALE TO COMPETE IN SEARCH? .................................................................................................................................. 19 A. Is Scale a Necessary Input to Compete in Search? .......................................................... 19 1. Is an Accumulation of User Traffic Comparable to Google’s Necessary to Compete? .................................................................................................................. 20 2. Are Advertising Revenues Comparable to Google’s Necessary for Innovation? ..... 22 B. Does Google Make It Difficult for Competitors to Access Search Inputs? ..................... 23 1. Does Google Prevent Competitors from Accessing Its Content? ............................. 23 2. Does Google Prevent Competitors from Attracting Advertising by Restricting Advertisers’ Ability to Compare Campaign Data Across Multiple Platforms? ........ 24 C. Does Google Make It Difficult for Consumers to Access Competitors’ Search Services? .......................................................................................................................... 26 1. Do Google’s Default Agreements with OEMs Reduce Competition? ...................... 26 2. Is Google Excluding Competing Search Applications by Tying Its Search Function to Android? ................................................................................................ 27 IV. CONCLUSION............................................................................................................................ 29 INTRODUCTION Thanks to the contribution of the Chicago School of law and economics, the courts have emphasized since the late 1970s that antitrust law protects consumers by protecting the competitive process.1 That process necessarily entails certain competitors losing customers or exiting the market while other competitors gain customers. In particular, the Chicago School has helped to clarify the Supreme Court’s ruling that a monopolization claim under section 2 of the Sherman Act requires, in addition to the possession of monopoly power in the relevant market, “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”2 This distinction between monopolization through unlawful means and growth from meritorious rivalry is crucial to examining the search practices for which antitrust agencies in the United States and Europe have been investigating Google since 2010. Google’s competitors claim that its ranking methodologies and search algorithms are unfair. Critics have focused on whether Google’s ranking of its specialized search results harms competitors and whether Google excludes competitors by limiting access to search inputs. Unlike general search results, which provide links to other websites, specialized search results provide direct responses to the user’s query based on the type of media 1. See Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979) (“Congress designed the Sherman Act as a ‘consumer welfare prescription.’” (quoting ROBERT H. BORK, THE ANTITRUST PARADOX 66 (Free Press 1978))) (cited in National Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 107 (1984)); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993) (“The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself.”); Brook Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (“It is axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.’” (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962) (emphasis in original))). The Courts of Appeals have applied this principle many times. See, e.g., United States v. Microsoft Corp., 253 F.3d 34, 58 (D.C. Cir. 2001) (per curiam) (“[T]o be condemned as exclusionary, a monopolist’s act must . harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.”) (emphasis in original); Ball Memorial Hosp., Inc. v. Mutual Hosp. Inc., 784 F.2d 1325, 1338 (7th Cir. 1986) (Easterbrook, J.) (“The deeper the injury to rivals, the greater the potential benefit. These injuries to rivals are byproducts of vigorous competition, and the antitrust laws are not balm for rivals’ wounds.”). 2. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966) (emphasis added). October 2012 3 pertinent to the query, such as images, videos, maps, local places, products, and real-time news.3 But it is difficult to see how anything that Google does in search and ranking algorithms is unfair. Google bases its business on developing search and ranking algorithms that facilitate consumer searches. Google would employ a particular ranking methodology only if it helps to attract and retain search engine users. Google’s competitors do the same thing, including offering specialized search. Courts have long recognized that a practice likely has “redeeming competitive virtues” when all competitors use it.4 Moreover, that Google has gained market share, even at the expense of its competitors, from its questioned practices does not justify antitrust intervention. Judge Frank Easterbrook has explained that “every successful competitive practice has victims. The more successful a new method of making and distributing a product,