【The Intern - A Summer of Lust】

The The Intern - A Summer of LustEuropean Union (EU) hit Google this week with a huge fine for violating antitrust law in comparison shopping. Google is also currently under investigation by the EU for illegally tying the Android operating system with Google search, on monopolizing advertising, and a couple of other issues–in total five different antitrust investigations.

Additionally, several countries, including India, Korea, Russia, and Brazil, are at various stages of investigations of Google. What is going on?

Google, like Microsoft in the 1990s, ignored antitrust regulations. There are three core reasons.

First, these high-tech companies grew so rapidly from tiny organizations that faced limited antitrust issues to dominant behemoths that should be treading very carefully on antitrust, but they didn’t.

A second reason is pure arrogance: “we are dominant because we are much better than others in what we do; how dare the bureaucrats in Brussels disrupt our business model?”

The third reason is Google’s own belief that it can get away with violating antitrust law, just like it got away with violating copyright law when it scanned millions of books without the publishers’ or authors’ permission. After all, the antitrust watchdogs in Washington, where Google wielded considerable influence during the Obama administration, have not brought cases against Google.

The background is important. For example, the comparison-shopping case arises from two issues.

First, Google artificially placed its affiliates’ search results (including its comparison shopping service “Froogle”) on the top of the first page of organic (unpaid) search, giving an anti-competitive advantage to its affiliates.

Second, Google degraded (intentionally placed on page 4 rather than page 1) the search results of other comparison shopping services and other “aggregators” (web sites that provide consumers with information on stores/sites that might have a “50-inch TV”). Google says that it did this to increase quality, since now consumers do not have to click twice to get results.

However, most people believe it should be up to the user if they want to click once or twice, and not up to Google to degrade the quality of rivals’ search results in a self-serving way.

The second big EU case against Google is on Android tying. Google provides the Google Play app that allows for new apps to be downloaded and updates old ones. But Google requires that if a phone manufacturer uses Google Play, it must also use Google Search as a default and place its icon in a prominent position of the screen.

As I have written, this is called "tying" in antitrust, and it is strictly illegal in the EU because it artificially tilts the playing field in search as well as discourage innovation and new entry in search

As Microsoft found out very bitterly, eventually you cannot get away with violating antitrust law either in the US or abroad. Google should take these indictments and allegations seriously and settle the cases as soon as possible, like Microsoft did in recent years. The two cases the EU has brought against Google this far (comparison shopping and Android) are almost certain to be won by the EU.

So, what is Google to do? Settle! Why? The costs of not settling are enormous while the losses from settling and stopping all questionable practices are small. The benefits to Google of placing its Froogle service first are small, the benefits of degrading aggregators negligible, and the benefits of tying Google Play with Google search not important since Google is dominant in search anyway, and is also dominant in search on PCs where it does not impose tying.

There is no good argument against settling and accepting the EU’s terms. But high-tech arrogance might carry the day.

Nicholas Economides is an economics professor at New York University Stern School of Business and a visiting professor at Berkeley’s Haas School of Business.