Google facing European competition inquiry

The European Union (EU) has accused Google of abusing its market position to distort Internet search results, in favour of its Google Shopping service.  The European Commission has sent a Statement of Objections to Google outlining its view that Google users do not necessarily see the most relevant results in response to search queries – to the detriment of consumers and rival comparison shopping services, as well as stifling innovation.

The case is the first time that antitrust charges have been brought against Google, despite years of disputes between the company and EU regulators. It will increase pressure on Google to address complaints that the company favours its own products in search results over rival services. Ms. Margrethe Vestager, the European Union’s competition commissioner, referring to Google’s search practices, said:

“If the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe”

The investigation was prompted by a number of complaints filed in 2009-10 by various Google competitors – from other giants, such as Microsoft, to small, struggling or defunct web businesses.

The EU could levy a fine that could exceed €6 billion; approximately 10% of Google’s annual revenue. However, the largest single fine imposed by the EU to date is €1.1 billion in 2009 against Intel for abusing its dominance of the computer chip market.

“While Google may be the most-used search engine, people can now find and access information in numerous different ways — and allegations of harm, for consumers and competitors, have proved to be wide of the mark,” the company said in a blog post.

Vestager has made the Google inquiry a top priority, signalling a willingness to consider court battles and hefty fines if Google and other US digital giants don’t fall into line with European competition law. Ms. Vestager said that she had also opened a formal antitrust investigation into the Google’s Android smartphone software.

Google avoided an antitrust investigation in the U.S. in 2013 by voluntarily loosening its advertising and patent licensing policies. However, European regulators have taken a more aggressive regulatory stance against American tech companies than their counterparts in the United States and have rejected the tech giant’s offers to make voluntary changes to its search engine. The EU antitrust action against Google promises to be just the first step in a likely escalation of actions against Google and other big-data platforms increasingly dominating the online and offline economic landscape.

For example, Europe’s policy makers are:

• reviewing low-tax arrangements granted to Apple in Ireland and Amazon in Luxembourg
• looking into how securely companies like Facebook are protecting people’s online data
• investigating whether American Internet platforms like Amazon have too much control over how Europeans gain access to online services.
• insisting Google in the European Union removes some links in online searches in response to people’s declared “right to be forgotten.”

Google may be pressured into slowing its acquisitions of start-ups that could help it develop new products. Regulatory scrutiny of Google in the US delayed its purchase of device maker Motorola Mobility in 2012, because of concern that it would enable the tech giant to dominate the mobile sector. Europe fears that U.S. companies benefiting from their huge economies of scale, will dominate the whole economy at the expense of all consumers. In a recent speech, EU Data Minister Günther Oettinger argued for a new approach to European regulation; one that replaced “locked environments and platforms” with platforms that “must be more open and interoperable.”

IB Style Questions

1. Define the following terms:

• Economies of scale
• Antitrust charges

2. Explain the reasons why the EU is seeking to regulate the operations of large tech companies, such as Google, Apple, Amazon and Facebook.

3. Examine how economies of scale have helped Google gain a dominant market position for its Android mobile operating systems.

4. Evaluate the potential impact on Google’s objectives and strategy of political and legal constraints in Europe and the US.

Sources

• Image: usnews.com
• New York Times
• The Guardian
• Huffington Post