Breach of Trust

He provided an example — consider a new phone with preinstalled software. “When you buy a new Android phone in either the U.S. or E.U.,” he said, “you get a set of welcome screens. One thing they could do is include in that set of welcome screens a screen where you select your search engine, and Google could be on that, Yahoo could be on that, Microsoft Bing could be on it. But Google's competitors say, ‘No, no, that won't work, because Google already has such a big advantage.’ The whole idea here is that consumers apparently are not aware that they're being injured because they're being ‘steered’ towards Google search. They seem to be fine with Google search results, but what the E.U. wants is to favor Google's competitors at Google's expense, and I'm fearful that it will be done in a way that harms consumers. If we can degrade the results of Google search and make Bing or Yahoo more attractive by comparison, we may be helping their competitors in terms of search share but we are not doing consumers any good. My solution to this problem would be one that has more to do with giving consumers more visible choices, and perhaps removing the default. A more neutral playing field. If from that field they pick Google, then I think the anti-trust authority has done all that it can do.”

Hovenkamp sees activity beyond this boundary as somewhat questionable. “It's not our job,” he argues, “to tell consumers which search engine they should be using. It is our job to guarantee that they have a choice of search engines. But that's not the tack that the E.U. is taking right now. That's why I think this bodes poorly for Google's prospects in Europe in the future. I think it bodes poorly for the E.U. in another way. There's been a widespread observation that the rate of innovation in the European Union is much, much lower than it is in the United States. I think this case against Google virtually ensures that. Who wants to develop a highly innovative technology in a hostile market? Especially if you can develop in a market like the U.S., which is more welcoming of highly creative technologies. Russia and China tend to be home-court referees, they tend to favor their domestic firms over the U.S. firms. I don't think the E.U. is doing that, but I think it's creating a minefield for highly innovative firms by telling them, 'If you become successful, and you get a large market share because of this innovation you have to understand that we may try to take it all away from you by means of a competition lawsuit.' That's why I totally supported the Federal Trade Commission in the United States when they looked at Google search — as they should have, they had complaints and their job is to investigate. But then they decided not to go forward.”

One interesting and necessary historical perspective on this question comes via the Berkeley economist Carl Shapiro. Shapiro, in a 2017 academic article, pointed out that upsurges in political populism are sometimes accompanied by attempts to broaden the scope and focus of anti-trust law. We spoke to Shapiro about the historical roots of this process and what it might mean in today’s context — as well as his concerns about it.

“U.S. anti-trust laws have their roots in the populism of the 19th century,” Shapiro noted. “The Sherman Act dates to 1890. The other key statutes, the Federal Trade Commission Act and the Clayton Act of 1914, come from around the time of Teddy Roosevelt and trust-busting where these similar sentiments were very strong, in large part because we started to have a national economy and thus firms that were national and much larger than anything we really saw in the 19th century. It took some time to get accustomed to that. Now we're about 100 years later. 50 years ago, right in the middle of that century span, we had a surge not in populism, I would say, but in concern about industrial concentration. This brought forth proposals to de-concentrate and the very aggressive enforcement and implementation of anti-trust law. We're back in a period where there's a lot of talk, at least, about taking a much more aggressive stance in anti-trust against either dominant firms or consolidation and mergers. In anti-trust, I think it’s fair to say that in the late 1970's and early 80's, there was a substantial shift. There was a recognition across the board that some of the anti-trust precedents and enforcement had gone too far. And it wasn't just the Chicago School economists. There was also the Harvard School, of which Stephen Breyer was a part. I think economists generally agreed with that and were part of that rethinking.”

The idea that the change in anti-trust enforcement is part of a move by right-wing political and economic thinkers, Shapiro says, is a “misimpression.” “It really was a correction that was viewed as necessary in a bipartisan, or widespread, manner,” he notes, “and then it really came into fruition with the Reagan administration, when Bill Baxter was running the anti-trust division. There were new merger guidelines; there was a series of Supreme Court cases cutting back on anti-trust. So there is a real change that occurred at that time, and now I think one way to view the discussion today is: did we go too far? Possibly. One can point to Supreme Court cases that have been, I think, overly restrictive on the Sherman Act — trimming it back too far — and I think we could be and should be somewhat more aggressive in terms of preventing or blocking certain mergers. I don't want to be misunderstood on this, though: I'm talking about a significant but not radical turning-up of the dial in terms of horizontal merger enforcement. The other thing that's very important here is I would like to see all that done consistently with the widely accepted principle that we're trying to control mergers when they reduce competition. When they harm customers and ultimately final consumers. Not for some other purpose for which anti-trust laws are not well-suited.”