Google DoJ lawsuit highlights vagaries of U.S. antitrust law
Hans Lautensack: David and Goliath, 1551. Image in Public Domain
The Department of Justice’s (DOJ) lawsuit against Google has come to trial, and the stakes are high. Focused on the company’s original search unit, the suit contends that Google’s parent company Alphabet abused its power over search and used illegal agreements to cement its market dominance. But the company has its own advantages, above all the weak iteration of US antitrust law in the neoliberal era. Jacobin magazine analyzes U.S. antitrust law.
Economists have long recognized the dynamic of network effects, the pattern of some services gaining value as more people use them. Phone service and social media platforms exhibit this pattern — as more users join these services, you can reach more people with them and enjoy more communication or online content. Unlike other goods like food or clothes, their value depends on how many other users there are, and once such a service becomes large, it attracts most future growth and tends to become dominant.
This pattern explains why so many of today’s online markets are “straight out of the box monopolies,” as the conservative Economist magazine put it. Much as the phone network became more valuable as more users connected to it, so too do functions like online search gain value with more queries. This is because as users conduct searches using the engine and then choose a result (and perhaps return to click another if unsatisfied with the first choice), Google records this information in search of the “long click” — the search result that meets the user’s need. This nominal improvement of the quality of the search engine comes from the greater volume of user queries, which trains Google’s search algorithm to improve its selection and ranking of search results.
As more users turned to the search engine, its results improved based on their queries and result choices. This meant that the first good search engine, Google, quickly gained market dominance simply due to its far-higher quality in the early days of the industry.
America’s anti-monopoly laws are notoriously weak, even in comparison with other capitalist countries. The United States’ antitrust law was only created late in the country’s industrial development and after decades of utterly free play by gigantic trusts like John D. Rockefeller’s Standard Oil.
Whereas the EU’s competition laws allow action to be brought based on market dominance, US antitrust law does not outlaw monopolies, but rather monopolization — in other words, your monopoly may or may not be legal depending on how you got it. Microsoft’s own decades-long global monopoly over computer operating systems was completely legal, because it arose from network effects: Microsoft’s Windows was used for the influential early IBM PCs, creating a body of users that developers of applications and games wanted to reach, and the growing body of software for Windows in turn attracted more users.
The system was further weakened by Reagan-era changes to antitrust law. [These changes] held that big business was unfairly restrained and maligned in the then-receding New Deal era, and he claimed that enormous market power should not be enough on its own to challenge a corporate merger or order a breakup. Instead, this should only happen if it could be proved the company had raised consumer prices.
This view had the effect of dramatically decreasing the level of antitrust vigilance and unleashed a merger orgy throughout the 1980s and ’90s, creating the landscape of hyperconcentrated markets and gigantic global companies that we live in today.
This article originally appeared in Jacobin. Read the whole thing here.
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