Last week the European Commission issued a supplementary Statement of Objections (SSO) to Google. The SSO is intended to support the Commission’s preliminary finding that Google abused a dominant position in the market for general search services by systematically placing its own comparison shopping service at or near the top of its search results. It is the next step in an antitrust investigation which started in 2009 and comes in response to Google’s substantial reply to the Commission’s initial Statement of Objections (SO) from April 2015.
Commissioner Vestager stated that the SSO makes the case stronger by adding new evidence and data. While no one except the parties to the case has access to that new evidence, Vestager’s comments revealed that it relates to both the economic impact of Google’s alleged anti-competitive practice as well as to a clearer definition of markets in the e-commerce space.
Maybe the single most puzzling finding relates to the latter. Put as a short headline, Vestager stated that successful e-commerce companies like Amazon and eBay do not compete with Google Shopping. According to the Commission, merchant platforms compete in a different market than comparison shopping websites. In economic terms, it means that merchant platforms cannot be considered as substitutes for comparison shopping services. It is a curious finding given that there are thousands of merchants on online marketplaces which allow consumers to quickly compare products and prices. It strains credulity to think that consumers who would like to compare product prices would use a comparison shopping service and consciously refrain from comparing offers on other e-commerce websites such as Amazon. There are many routes to compare prices and products on the Internet, and they all clearly compete with one another for consumers’ attention and merchants’ product listings.
Looking at a cramped market of ‘comparison shopping services’ is of greater help to the European Commission’s case. It not only allows the Commission to ignore competition from successful, established e-commerce platforms but it also allows it to overlook the recent investment boom into European e-commerce ventures. At the end of 2015 an independent study sponsored by CCIA (the organization I work for) found that investments into the sample group of 25 publicly traded, pure e-commerce companies have increased by 27 times over the last three years (see here for a previous blog post on DisCo). Capital inflows into the sample group of 500 private e-commerce companies increased by 4.5 times. In aggregate numbers, since 2012 the 25 publicly traded e-commerce companies were able to raise €12 billion; for the 500 private companies that number stood at €5 billion. German fashion e-tailer Zalando is one of the prominent examples in the publicly-traded group of companies.
These numbers show that the online shopping space can hardly be described as a place with low levels of innovation and investment — which is what you would expect from a market subject to the anti-competitive behaviour of a monopolist. At the very least, investors are not deterred from investing into European e-commerce ventures. This makes the Commission’s statement that its conclusions would not be different even if merchant platforms are included in the market affected by Google’s practices quite astonishing.
Another interesting aspect of Commissioner Vestager’s comments related to her accusation of Google ‘favoring’ its own shopping service in a systematic way was when she said that this is where the Commission has the strongest evidence and “it’s the same kind of investigation that we are pursuing when it comes to travel and local search to see if we find a pattern that suggests that Google is abusing a dominant position in general search” [emphasis added]. Pablo Colomo at Chillin’Competition was quick to highlight that this could mean the case is primarily about discrimination in favour of Google’s own services. The question he rightly asks is whether the Commission pursues Google Shopping as a ‘by object’ case, i.e. that Google’s practices are abusive by their very nature, which would inevitably put any dominant company that one way or another favors its own services under antitrust scrutiny. This would also be a strong departure from current case law which does not bind dominant firms to a general duty of non-discrimination.
For consumers, the consequences of such an approach would reach far beyond Google’s comparison shopping product. Commissioner Vestager mentioned investigations into travel and local search. However, a general duty not to discriminate would potentially be applicable to all vertical services that are integrated into general search. It would certainly impact a consumer’s ability to see a Google Map in response to an address query, and could even go as far as to prevent consumers from using Google’s currency conversion and translation services as part of the Search experience, for example. Just like all other verticals, the prominent placement of Google’s own currency conversion ‘box’, for example, is intended to provide the best user experience by providing a direct free answer without the need for multiple click-throughs. Would online currency conversion services have a claim against Google for ‘stealing’ traffic because of discrimination? Under a new discrimination test targeting certain ‘patterns’ in search display, potentially yes. Accordingly, consumers would be deprived of a no-cost, high-innovation product, a counterintuitive result for a competition regulator.
Importantly, such an approach would also stand in direct conflict with numerous similar cases which Google has won so far. The most recent and high-profile judgement was given by the UK High Court in Streetmap vs Google at the beginning of this year. The argument brought forward by Streetmap was in many respects similar to the ones brought forward by the complainants in Google Shopping: Google is discriminating against online mapping providers by favoring Google Maps in search results (see in particular para. 54 of the judgment). In dismissing this claim, the judge made clear that even if Google’s practices were to have anti-competitive effects (which he also dismissed), they are objectively justified. That justification is in essence that even a dominant search service provider should not be hindered or deterred from improving its product — such a result of competition law enforcement would ultimately be bad for the competitive process and for consumers. Interestingly, the judge also explained at great length that it would be very difficult for Google to somehow ‘integrate’ the mapping services of other companies, a solution sometimes advanced by Google critics as regards a range of vertical search services going beyond map display. There is no way for Google to check the product quality and function of third parties for every user query across multiple languages so that it could be confident enough to somehow ‘insert’ somebody else’s product in every circumstance.
Previous cases involving Google’s weather forecast function in Germany, the recent closing of Canada’s investigation, or the high profile FTC investigation (conducted in cooperation with the Commission) also cleared Google of any ‘search bias’ accusations. Ultimately these cases as well as the ongoing Commission investigation are all about how much freedom competition rules should leave for companies to develop their products. In digital markets, where companies have such a strong incentive to provide a better user experience due to the constant competitive pressures, a de facto prohibition on product differentiation and improvement is certainly not the most desirable outcome.