The brand new Google fits
Just before the holidays, 44 states filed two separate lawsuits alleging Google violated the Sherman Act and 16 different state laws. The 245-page lawsuit aims to fragment the company and force it to pay potentially hundreds of billions of dollars in triple damages. In short, the suits focus on two main issues: Google tried to monopolize the online search engine market (“the search lawsuit”) and Google tried to monopolize the online advertising market (“the ad tech lawsuit”).
The search lawsuit cited by Colorado largely follows an earlier lawsuit by the Department of Justice. It is alleged that Google unlawfully maintains monopolies through exclusion agreements that require computer and mobile device manufacturers to set Google as the default search engine and preinstall Google applications. Like the DOJ, states allege that Google is using exclusive contracts to monopolize Internet of Things search components such as automobiles and voice assistants, and that Google’s algorithms penalize specialized search competitors like Yelp and Expedia.
The ad tech lawsuit cited by Texas alleges that Google is wrongly monopolizing online advertising by rigging auctions in its favor, partnering with Facebook, and pressuring advertisers to use the full suite of advertising tools. In essence, the lawsuit alleges that Google is using its size to give it an unfair competitive advantage when it comes to serving ads. For example, the lawsuit alleges that Google promised advertisers that it would use its tools to run ads on competing search engines and exchanges, but actually tilted the playing field in its favor. According to the complaint, Google gave Facebook preferential treatment and more data in return for Facebook’s consent to limit competition for advertising auctions. Similarly, states claim that Google “is using its market power to withhold YouTube inventory from competing ad tools, forcing advertisers to use Google’s tools to buy ad space from the leading US video inventory company.”
The lawsuits raise numerous complex factual and legal questions that will likely take years to resolve. However, at this early stage, some points become clear.
These lawsuits, along with two lawsuits against Facebook, fuel the antitrust debate by Congress in court. Many reformers, especially on the left, but also on the right, are trying to expand the scope of antitrust law. Some proposals would force companies to separate into individual business areas, impair the ability of certain companies to acquire other companies and even force antitrust law to respect amorphous values such as “fairness” and “democratic ideals”. With these lawsuits pending, Congress is less likely to pass critical antitrust laws. Many reformers, such as the judiciary of the house, Jerrold Nadler, praised the lawsuits as an “important step” in maintaining online competition. Given that existing laws may allow courts to address competition concerns, it will be harder for antitrust reformers to convince their peers that Congress needs to revise antitrust laws now. At the very least, given the major antitrust cases on trial for two decades, Congress should take a deep breath before attempting to rewrite a century of antitrust law.
The lawsuits challenge the idea that vertical integration benefits consumers. Google places both advertiser ads and ad space for most of the ad-supported websites in the world. Google runs the most popular general search engine and many features like YouTube and map apps that attract millions of eyeballs. Google’s popularity gives it an upper hand in the ad search market. Google provides tools to help advertisers evaluate customer interactions and acts as an intermediary between the publisher’s ad exchange and its own online ad servers. In the statements of the states, Google is abusing its breadth by “tying” these offers together, forcing advertisers and publishers to accept all offers and pay higher prices in order to reach the millions of offers or have a better chance of reaching them Eyeballs otherwise inaccessible to those looking for more direct business deals with other networks. At least in theory, this behavior could violate antitrust laws: In this narrative, the use of Google’s search market power is considered a breach of commitment if Google (allegedly) restricts the ability of customers to advertise on Google’s most popular offers such as YouTube, unless these customers also use the entire product suite from Google. Google is likely to oppose that its integrated offerings benefit its customers through lower prices and efficient services, and that in any case Google has the right to grant preferential treatment to customers who use more of its services. While the facts will come to light over time, it is generally notoriously difficult to bind claims in court, and economic research suggests that vertical integration benefits consumers. The antitrust authorities agree to this principle.
The lawsuits attempt to define the broader competitive landscape. Most antitrust lawsuits depend on the definition of the market: the narrower the market, the easier it is to argue that a company has the market power to charge higher prices. In these cases, states define the relevant markets as narrowly as a margin of choice in Wisconsin. For example, states define the advertising market to exclude television, radio, print, and outdoor advertising, and the search market to exclude specialized search engines and social media advertising. The Ad Tech lawsuit alleges that YouTube dominates the “online instream video advertising” market, which is close to claiming that YouTube dominates the market for YouTube. In reality, advertisers can reach consumers on many other sites that stream video including Facebook, Flickr, TikTok, Twitch, Twitter, Dailymotion, Snapchat, and even MySpace, which still get fifteen million views a month.
The lawsuits are trying to fix an industry that is already very competitive by many standards. Online ad fees are falling, overall ad prices are falling, and production is rising. From 2010 to 2019, domestic spending on online digital advertising quintupled from $ 26 billion to nearly $ 130 billion. Over the same period, Internet advertising costs fell by almost 40%. In general, these characteristics embody a competitive market that is not dominated by a monopolist (monopolists tend to reduce production and raise prices to maximize their revenue).
The courts have many hotly debated facts to resolve. In what is perhaps the most tempting indictment, the states accuse Google of partnering with Facebook to limit competition for advertising auctions for the benefit of both companies. Google counters that Facebook does not receive preferential treatment, that dozens of other companies are bidding in the same auctions and that Google has made no secret of its agreement with Facebook. As many states’ grievances are being redacted, time will tell whether states have identified facts that support solid cartel theory.
In another controversial indictment, states allege that Google is deliberately restricting competition from specialist verticals in certain market segments such as travel, home improvement and entertainment by “restricting these companies’ ability to acquire customers.” For example, a fee is charged that Google downgrades the search visibility of companies like Expedia and TripAdvisor in order to use their own properties. Google counters that its search results favor the companies themselves and not the middlemen, which allows companies to contact their customers directly. This is where Google may get help from … the Federal Trade Commission. In 2013, the FTC investigated the alleged search trend and concluded that Google’s search tools “likely benefited consumers”. Google found that Google designed its search tools to deliver high quality results and not stifle competition. The courts need to assess whether the FTC got it right at this point, whether anything significant has changed, and whether Google has designed its search algorithms to affect competition or to provide individuals with only the results that Google deems desirable.
Before the lawsuits are closed, real events are likely to bring more competition to the market. State lawsuits are likely to last two or three years, including appeals. Maybe longer. At this point, the competitive landscape could be very different. Apple is reportedly planning to turn Siri into an independent search engine rather than a voice for Google searches. In this case, three of the world’s largest technology companies will have strong competition in the general search market. A fourth company, Amazon, has already outperformed Google in product search, which is where search engines make almost all of their money. Walmart, not a competitive slouch, recently launched its own self-service ad platform. Beyond existing competitors, smart TVs could soon offer personal advertising, European regulators are actively trying to empower their tech companies by hobbling their American competitors, and Chinese companies continue to invest strategically in emerging technologies.
As is often the case in the last century, the market is likely to move much faster than the court system, especially in an industry as dynamic as technology. Today’s competitive landscape may seem curious by the standards of 2025, for example, just as the 2008 landscape, dominated by MySpace and AOL, appears curious today. While lawsuits are certainly observable, the real guarantor of competition is likely to take place outside of the courtroom.