Antitrust, Robert Bork, and Google
Everything you need to know about the antitrust debate that will define the tech giant
The Origins of Antitrust
Antitrust law emerged as a reaction to the massive conglomerates of the late 19th century. These conglomerates controlled large swaths of the economy, the two biggest ones being U.S. Steel and Standard Oil. Through their market power, these “trusts” were able to dictate the price of goods, influence policymakers, and ward off potential competition. On the federal level, there are two main laws concerning antitrust:
The Sherman Act
Passed in 1890, the Sherman act makes it illegal for competitors to form agreements that would limit competition; this includes practices such as price-fixing and price discrimination. The Sherman Act also makes it illegal to be a monopoly if you engage in anticompetitive practices. In practice, this means that regulators have to prove that a firm (1) has market power and, (2) exercises this power in an anticompetitive manner.
The Clayton Act
In 1914, Congress passed the Clayton Act, which provides the legal basis for merger reviews, which constitutes the majority of oversight conducted by both the DOJ Antitrust Bureau and the Federal Trade Commission.
In addition to these Federal Laws, most states have anti-competition laws that mimic the Sherman and Clayton Acts. Antitrust actions can be brought by the DOJ Antitrust Bureau, the FTC Competition Bureau, State Attorneys General, as well as private companies or individuals.
The Emergence of the Consumer Welfare Standard.
The heyday of antitrust enforcement came from the late 1930s to the early 1970s. During this period, regulators rigorously enforced antitrust laws. Under this regime, the Supreme Court blocked a merger of two shoe companies that would have controlled 5% of the market in 1962 and blocked a merger of two supermarket chains in Los Angeles that would have controlled only 4.5% of the local market.
In reaction to this antitrust regime, economists and lawyers began to push back. The Chicago School of Economics and the American Enterprise Institute offered a worldview that the market had self-corrected and that the government’s actions rigorously enforcing antitrust laws were simply punishing success. The culmination of this movement was Robert Bork’s book in 1978 entitled “The Antitrust Paradox.” In his book, Bork argued that the original intention of the antitrust laws was to protect consumers, not just competition. Ultimately, the Supreme Court agreed with Bork and adopted the “Consumer-Welfare Standard” in a 1979 ruling. Under this new standard, prosecutors had to not just prove that companies were exercising anti-competitive market power, but that their doing so was hurting consumers. The consumer welfare standard is driving the debate around antirust today, as can be seen in the case of Google.
The Case Against Google
Currently, there are three antitrust lawsuits against Google. The first case was filed by the Department of Justice in October of 2020. In its case, the DOJ argues that Google uses its market power to stifle competition. Most notably, Google pays Apple $12 billion a year to keep Google as the default search engine on all iPhones. The case alleges that Google’s anticompetitive conduct is hurting consumers.
“Absent a court order, Google will continue executing its anti-competitive strategy, crippling the competitive process, reducing consumer choice, and stifling innovation. Google is now the unchallenged gateway to the internet for billions of users worldwide. As a consequence, countless advertisers must pay a toll to Google’s search advertising and general search text advertising monopolies; American consumers are forced to accept Google’s policies, privacy practices, and use of personal data.”
Essentially, the Department of Justice sees that Google has two main categories of consumers: users and advertisers. Users are denied access to innovation, data security, and choice due to a lack of competition in the market.
Another case, led by the State Attorneys General of Colorado and Nebraska, argues largely the same thing. However, it adds that Google has discriminated against third-party search engines, like Yelp, and Kayak, in its search results.
Finally, another group of State Attorney’s General, led by Texas, has filed an antitrust lawsuit against Google, specifically about its advertisement business. Google runs an online marketplace for selling advertisements. At the same time, it represents both websites selling space for advertisements and companies looking to buy space to advertise. 90% of all online advertisements are placed using Google’s system. The lawsuit alleges that the result of this is a conflict of interest that is hurting advertisers.
The Case for Google
In response to these allegations, Google’s Director of Economic Policy, Adam Cohen, released a statement entitled, “Redesigning Search would harm American consumers and businesses.” Cohen begins by asserting that companies like Amazon, Expedia, and Tripadvisor constitute competition to Google as users can navigate off of Google and onto these platforms. However, Cohen spends most of the article pointing out how Google has helped consumers; he points out that the Google product has gotten much better over time. In 2000, a search for “bread” yielded 10 relatively unhelpful results. Today, the same search will get you a curated breadth of information with thousands of websites, articles, pictures, and cooking videos. Essentially, Cohen argues that regulators have failed to meet Bork’s consumer welfare standard. Interestingly, Cohen acknowledges that Google bypasses the third-party search engines alleged by the States Attorneys General, but argues that, when consumers search for products and services, it is beneficial for the consumer to be connected directly, and not have to go through online middlemen. Cohen worries that the changes called for by the lawsuits would require Google “to prominently feature online middlemen in place of direct connections to businesses.” Cohen believes that doing so would harm both businesses and consumers.
The Future of Antitrust
The case against Google shows the central question that defines antitrust today: should we get rid of the consumer welfare standard? Regulators going after Google will likely face an uphill battle because of it; they not only have to prove that Google has monopoly power and exercises it — the two original tenets of the Sherman Act — but they have to show that anti-competitive practice is hurting consumers.
A subset of lawyers and academics have begun to call for a return to antitrust enforcement without the consumer welfare standard like it was in the time before Bork. They believe that antitrust should promote competition for a myriad of reasons, not just to protect consumers. Among these are concerns over the political implications of having one company with so much power over the media that the American public sees. What if Google decides to ‘pick’ political candidates and tailors the news presented to voters to do so?
On the other side, advocates of consumer welfare argue that there needs to be a standard to evaluate antitrust cases. They feel that going back to the time before Bork, when unelected judges blocked mergers of companies with market shares under 5%, is surely not preferable. Moreover, “digital platforms” like Amazon, Facebook, and, (of course) Google rely on having a high market share to effectively deliver their products. Cohen points out that Google can use the sheer amount of data it has available to improve its product by using its data to research how to create a better product. Proponents of consumer welfare argue that these companies need to have substantial market power to deliver the services Americans have grown to love — surely we shouldn’t punish success.
Further Reading:
Redesigning Search would harm American consumers and businesses
Google’s Antitrust Cases: A Guide for the Perplexed
48 AGs, FTC Sue Facebook, Alleging Illegal Power Grabs To ‘Neutralize’ Rivals
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