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The Google Shopping Decision: When the Only Way to Be Law-Compliant is to Discriminate Against Yourself

· June 29, 2017

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After an investigation that has lasted for more than seven years (we discussed it earlier here), this week the Commission issued its Decision in the Google Shopping case. The verdict: Google abused its dominant position in general search services by favoring its own Google Shopping price comparison product in search results. While the record fine imposed on the company quickly became the headline-grabbing part of the Decision, it’s not even the most important element. What is much more important is what this Decision tells us about how the Commission views the dynamics of competition in digital markets and what it thinks Google should do to remedy the abuse. Let’s walk through some key aspects one-by-one.

At first sight, the allegation that Google plays unfairly seems attractive. It is the most popular search engine and giving prominence to its own price comparison service will naturally not be to the liking of anyone competing with similar services. But the key aspect of competition law enforcement is that it’s not about a subjective judgment of what is ‘fair’ or ‘unfair’. Competition law is concerned about conduct that is anti-competitive. The question is whether Google behaves anti-competitively with the aim of foreclosing competitors in a given market. Answering that question objectively against the background of applicable law is much more difficult than judging subjectively whether something is fair or not.

So does Google have any good, pro-competitive reasons for placing its own services first? It surely does. For starters, search engine technology has long moved away from just providing a list of hyperlinks to users’ search queries. Today, search engines try to give direct answers to users’ queries which is a massive product improvement — there is actually no evidence of anyone disputing that fact. All major search engines do precisely that. If you look for a place, usually a map would show up. If you want to know currency exchange rates, an exchange rate converter pops up. The same is true for language translations, flights, news, etc. Providing direct answers means that people don’t have to click through and maybe retype their queries into another service because the answer is right in front of them. Because these product innovations improve user experience they are inherently pro-competitive rather than anti-competitive. In this process of improving search services, competitors may get hurt of course — but that must be seen as a natural byproduct of any competitive process. And it is precisely that process which competition law is designed to protect.

The second prong of the Commission’s Decision rests on the alleged demotion of Google’s competitors in search rankings. It is fundamentally important to stress up-front that there is no evidence for a deliberate, targeted demotion of individual competitors. Commissioner Vestager stressed that Google did not act with bad intentions and the Commission’s press release confirms this by stating that Google has, in general, introduced criteria to its search ranking algorithms that had the effect of demoting rival comparison shopping services across the board. That is important because it should of course be up to any company to decide on the exact formula of its ranking algorithm — the secret source of all search engines. This formula will always be subject to change as the web evolves and as consumer preferences shift. In other investigations against Google regulators held that if someone fell in the ranking it could well be justified by the improvement of the overall quality of search results — e.g., the display of a greater diversity of websites. Furthermore, falls in search rankings may well have not much to do with search engines and much more to do with the fleeting popularity of some websites. That may be particularly true for the broader online shopping sector. It’s not hard to imagine how the popularity of some price comparison sites sinks in light of e.g. the ever-increasing popularity of merchant services. If you’re a European price comparison site specializing in fashion, you are very likely to have felt the consequences of e.g. Zalando competing fiercely for online shoppers. This development would have nothing to do with how Google designs its search results page.

That point leads to the crux of competition enforcement: is there any form of market foreclosure? Concretely speaking, is Google able to foreclose the market by implementing the algorithmic changes described above? If you look at the plethora of online services allowing consumers to look up, compare and buy products, that is hardly the case. Unless the Commission thinks that price comparison services are a different breed of online companies in need of special protection because they are very reliant on traffic from general search engines. But that would require treating them differently from other vertical services for which there is little justification. Everybody loves free traffic — why would competition enforcement guarantee companies operating in a niche area of e-commerce special treatment? The incentive must be to build an attractive product independently of how much traffic one receives from search engines. Google, just like any other search engine, would never be able to guarantee ‘enough’ traffic anyway independently of whether or not it decides to provide a given vertical search service itself.

The above takes us to the final issue of the Commission’s Decision: the ordered remedy. The Commission demands Google to stop its illegal conduct and to refrain from anything that has a similar effect. Experts were quick to highlight that if the loss of traffic to price comparison sites is linked to something other than Google’s conduct, just like the demise of Streetmap was found to be attributable to something other than Google prioritizing Google Maps in the UK, how would Google fix that? Google can’t fix that. Second, Google is ordered to adhere to a principle of ‘equal treatment’ — i.e. treating rival price comparison sites equal to Google Shopping. But given that Google Shopping is first and foremost an advertising service, that would mean that Google would have to reserve its most valuable advertising space for rivals — unless somebody can prove that Google fulfils the very high legal standard of an ‘essential facility’ such remedy cannot and should not apply in this situation. If the alternative is to place blue hyperlinks to a narrow group of rival websites at the very top of search results, Google Shopping would suddenly become much less useful for advertisers and users. Ironically, by suppressing its innovative product Google would be discriminating against itself.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.