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Regulatory overreach



The European Union (EU) last month slapped a record $2.7 billion fine on search-engine giant Google for abusing its position of dominance in the market. It was found guilty of favouring products listed on its own price-comparison website ‘Google Shopping’, over those on competing websites. While the decision has gained the support of many who fear Google’s market dominance, the fine is still unwarranted.

Downplaying products from rival websites does not sound pretty, but that is not enough reason to punish Google. All businesses enjoy control over how they make use of their resources, which in turn gives them the opportunity to discriminate against rival products often. Even local supermarkets, for instance, can decide to prominently showcase their own products over those of their rivals. The question is whether there is any economic case for regulators to set this practice right.

The answer is ‘no’ for various reasons. One, businesses often have a valid economic reason to showcase certain products more prominently than others. Google, for instance, prominently lists products for which it receives money from advertisers. Advertised products are better targeted, so it helps consumers to find what they want sooner. Two, discrimination can often end up costing a business if there is no valid economic reason behind it. Google, for instance, would lose users to better search engines if its search results simply flaunt its own — but inferior — products instead of meeting the demands of users. In fact, Google in its defence has said that user experience is the reason it lists products from ‘Google Shopping’ at the top of its results page — as they require fewer clicks from users.

Not a legal monopoly

At this point, critics say Google is too big compared to its rivals, which in turn justifies corrective action by regulators. Google, with well over 80% of the market share in Europe’s search engine market, is indeed huge. But it is not a legal monopoly, as anybody is free to compete against it. Barriers to entry in the technology market are usually low, so all it takes to challenge Google is the ability to offer a better product that consumers want. Some say that’s an impossible task, but history proves that a free market can topple market leaders often. Microsoft, Yahoo, and even Google’s own social networking site Orkut are notable big victims of competition. This is not to deny that dominant businesses can, at times, get away with their misdeeds temporarily. It could take time for substitutes to arise. But these costs are tiny compared to the perils of government regulation influenced by special interest groups.

After all, it is well-documented that EU regulators are not apolitical. They have been under pressure from Google’s competitors, as well as protectionist politicians who fear domination by American companies. EU’s regulatory overreach is thus bad for innovation and consumers.

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Printable version | Aug 10, 2022 7:09:31 am |