The Google Shopping case raises many important questions, such as: how do we deal with the leveraging of market power in digital markets? How do we weigh the benefits to consumers against the potential harm to competition? And, lastly, what are the appropriate remedies for this type of behaviour?
In addressing these questions, this paper is structured as follows:
A first section describes the background to the Google Shopping decision by the European Commission.
Google aggregates, sorts, displays and provides direct access to retailers’ webpages in exchange for a fee through Google Shopping. Other online platforms, including Nextag, Foundem and Shopzilla, offer similar services. However, until early 2018 ‘while competing comparison shopping services can appear only as generic search results and are prone to the ranking of their web pages in generic search results on Google’s general search results pages being reduced (‘demoted’) by certain algorithms, Google’s own comparison shopping service is prominently positioned, displayed in rich format and is never demoted by those algorithms.’
The Commission concluded that the more favourable positioning and display for Google Shopping, in combination with the demotion of rival comparison shopping websites, was abusive. This self-preference for Google Shopping was found to decrease traffic from Google’s general search results pages to competing comparison-shopping services and to increase traffic from Google’s general search results pages to Google’s own comparison shopping service. This, in turn, is capable of having, or likely to have, anticompetitive effects in the national markets for comparison shopping services and general search services.
A second section discusses digital leveraging concerns.
The debate on how competition authorities should handle leveraging practices in digital markets started in the 1990s with the Microsoft browser cases in the US, and will no doubt continue in the future. The main precedent in Europe for such an anticompetitive conduct is the tying by Microsoft of its dominant Windows operating systems with Windows Media Player. As a remedy, the Commission required that a version of Windows without Windows Media Player should be made available to PC manufacturers, with no commercial disadvantages with respect to the bundled product.
In the meantime, digital markets have continued to move towards more integrated services. Technology companies from different fields have merged in order to provide more personalized and wide-ranging services.
The integration of services and the leveraging of capabilities from different areas allows innovation to take place. However, it may be easier for larger incumbent players to add services to their existing platforms than for new players to enter the market, particularly if the incumbent has easy access to an established user base and important data sources. While putting data acquired in the provision of digital services to develop other services may stimulate innovation and technological progress, the question is open as to how far such practices harm competition for the provision of individual services, and ultimately harm consumers, thereby offsetting the innovation and convenience benefits that accrue to consumers who use an integrated service.
A third section looks at the effects of the Google Shopping decision on competition and consumers.
The theory of harm that led the Commission to find that Google had abused its dominance was that, by giving a prominent position and enhanced visibility to Google Shopping and demoting its rivals, Google foreclosed the market to these rivals, which in turn reduced choice for consumers. According to this reasoning, as a result of Google’s conduct consumers now have a smaller variety of visible comparison shopping services, and may thus be receiving a worse service than would otherwise be the case. In the Commission’s view, this conclusion would hold even if the market definition was expanded to include merchant platforms.
When the US Federal Trade Commission (FTC) reviewed Google’s practices in 2013, it placed more emphasis on the efficiency benefits that were said to flow from Google’s commercial rationale. The FTC acknowledged that competitors may have received less traffic as a consequence of Google’s product design, but considered this a by-product of Google enhancing the consumers’ experience. The FTC further concluded that the demotion of rival comparison shopping services to secondary results pages allowed for a wider variety of results on the first page. Somewhat similarly, when the UK’s High Court looked at how Streetmap had been treated by Google, it found that the integration of Google Maps into Google was a technical improvement to the service in which Google had a dominant position, i.e. in the market for general search. In other words, the FTC and the UK courts arrived at a different conclusion regarding the leeway that incumbents may have to integrate products in order to achieve dynamic efficiencies/innovative products.
A fourth section discusses what remedies may be adopted.
In its infringement decision, the Commission not only fined Google but also required it to bring the infringement to an end within 90 days. The Commission did not specify what measures Google would need to take in order to do so, instead placing the burden on Google to implement a remedy that solved the Commission’s competition concerns (with the potential for fines for noncompliance).
Google did so by creating an auction for display places in ‘OneBox’, the space that prominently displays results from comparison shopping websites. To comply with the prohibition of favourable treatment, Google Shopping takes part in the auction as well, with the additional condition that Google’s shopping comparison division must be profitable. However, rivals argue that this auction-based competition will remain ineffective as long as Google’s businesses are not structurally separated for two reasons. First, competitors are sceptical about the applicability and possibility of monitoring whether Google Shopping is maintaining separate accounts to ensure its individual profitability. Second, they contend that the participation of Google Shopping in the auctions creates upward pressure on bids, allowing Google to extract significant margins away from rivals.
Whether the Commission considers that the remedy meets its standards will become known over the second half of 2018 or 2019. From a public policy perspective, this position is somewhat unsatisfactory after eight years of investigation. It means that there is still limited clarity over what is permissible and what is not permissible, and over how the right balance should be struck under Article 102 TFEU between consumer benefits and innovation on the one hand, and harm to competition and competitors on the other.
This piece provides a good introduction to the issues raised by the Google Shopping case. I particularly enjoyed how it avoided taking a position on whether the Commission got it ‘right’ or ‘wrong’, and instead used the decision to outline a number of issues and challenges that the competition community will have to address when dealing with anticompetitive conduct in the digital realm.