Google and Facebook between them account for about 70% of online advertising. Is that an objectionable dominance, asked Stephen Dnes in his recent talk, or are the markets in which these technology companies operate somehow different from most other markets?

google-vs-facebook

The Ottoline Club met on 23 rd January 2018 in the Archive to hear a talk by Stephen Dnes entitled “The road from IBM to Microsoft to Google: the how, why and what of technology product competition regulation”.

Those present were: Stephen Dnes (Faculty of Law), Marianna Koli (Faculty of Economics), Peter Maber (Faculty of English), Phil Hunter (Faculty of Law), Yaprak Tavman (Faculty of Economics), George Zouros (Faculty of Economics), Mike Peacey (Faculty of Economics) and David Mitchell (Faculty of Philosophy).


 

When does dominance of a market by one or two actors offend against the aims of competition law? Stephen pointed out early on in his lucid and highly informative talk that Google and Facebook between them account for about 70% of online advertising. Is that an objectionable dominance, or are the markets in which these technology companies operate somehow different from most other markets? Economists do recognise ‘natural monopolies’, such as in electricity supply, and those who defend dominance more widely tend to do so on the economist’s grounds of efficiency, and its consequent fruits in innovation.

But should those be the decisive considerations? Competition law in the US and competition law in the EU ostensibly differ a great deal today, Stephen observed, as regards the comparative importance of efficiency as against other values, such as fairness and consumer choice, taken to favour protecting market entry. The US has seen a major efficiency-inspired reduction in the scope of anti-trust action in recent decades, since an important acquittal of Microsoft in the Federal Appeals Court in a case concerning product integration; this evolution has gone along with changes in prevalent views about the relation between protecting competition and protecting competitors. In Europe, by contrast, Google was found guilty last summer, at the end of a ten-year investigation, of distorting the shopping comparison market through discriminatory placement of search results, at the expense of rival comparison sites. Such contrasts in recent practic are in part a reflection of how much weight is given to efficiency, but also,
Stephen explained, a matter of where the burden of proof is regarded as lying, as between the regulators and the big tech companies.

Stephen provided a rich historical backdrop for this debate, with an abundance of thought-provoking cases and suggestive asides. He described for instance how electronic air ticket reservation systems, of a type originally introduced by American Airlines to its great benefit, came to be regulated. Of the many intriguing questions Stephen raised, several were taken up in discussion. In the matter of more or less natural monopolies, Mike pursued a comparison Stephen had touched on, with railways. An alternative to competition in a market is competition for a market, as where rival companies bid for operating franchises; but the relevant distinction between an infrastructure and the activities that use it has no obvious general counterpart in the case of technology markets. Marianna and Stephen offered illustrations of how in different kinds of country the terms of economic competition are influenced by political competition: Marianna referred to the situation of farmers in poor countries, Stephen to the
Obama administration’s indebtedness to Google for its data profiling in the 2008 campaign.

Another deep issue upon which we could only touch was that of the appropriate time-horizon for estimations of efficiency, or the question of the discount rate. Discount the future steeply enough, and almost all innovation becomes inefficient. Is it acceptable to say, with the Chicago School, that the market settles the proper discount rate? Misgivings were expressed about that line of thought, on grounds at any rate of the information available to market participants, if not also on more radical grounds. Practical concerns were also voiced, by Phil, about the scope for regulating global technology companies across international borders. Among these different themes are several which seem likely to reappear in the Club’s discussions before long; this meeting was certainly, thanks to Stephen, a good instance of fruitful interplay between legal, economic and philosophical perspectives.