On August 5, the U.S. Department of Justice (DOJ) made history with a landmark ruling against Google, finding the tech giant in violation of antitrust laws due to its monopolistic practices in search. This unprecedented decision has garnered acclaim from technology experts worldwide, who hope it will reinvigorate competition in the digital marketplace. But what are the real-world implications?
Andreas Schotter, Professor of General Management & International Business at Ivey Business School, explores this critical issue and its effects in Impact’s Ask the Experts.
Can you explain the significance of Google being labeled a monopolist by the court?
By labeling Google a monopolist, the court recognized that Google holds a dominant position in the market. This dominancy can enable it to influence platform markets one-sidedly, limit consumer and user choice, and manipulate prices to its advantage at will. The effect can also increase costs for advertisers without consequence and reduce incentives for innovation – further reducing potential value in the future.
While other tech giants, such as Microsoft in the late 1990s, have faced legal antitrust scrutiny, Google’s case is particularly significant due to the company’s high profile and sheer market dominance. Because of this, the ruling will very likely not only affect Google but also the entire tech platform industry.
What are the potential implications of this ruling for Google's business model?
Google is expected to appeal the court’s decision to mitigate the overall impact on the company. However, regardless of the outcome, the company’s business model will likely undergo significant changes. Potential remedies could include divesting certain business units into separate non-competing entities, modifying search and advertising practices, improving access for competitors, and implementing regular audits and reports on its practices.
How might this ruling impact other tech giants, who may also be facing similar antitrust scrutiny?
This is not a new phenomenon. In the past, telecommunications and energy companies were split up when reaching near monopoly status. However, in this example, the structured split helped provide choice and competition, ultimately benefiting consumers. In the tech world, particularly in the digital platform world, a split-up will have detrimental consequences for consumers due to the inconveniences faced when having to search on multiple platforms. It appears counterintuitive, but the very law that seeks to protect consumer change may limit consumer utility.
That being said, following this ruling, we can likely expect a rise in tech antitrust trials. This decision may finally bring much-needed legal clarity and set a precedent in an area that has long been ambiguous.
Why is it significant that Google pays to secure default status on devices? How does this practice compare to that of other companies?
To secure “default status” Google has been paying device manufacturers and/or operating system developers to make its services—for example its search engine, web browser, or apps—the pre-set options on their devices.
This practice undermines fair competition by blocking less well-funded and reputable companies from achieving similar status or even access. Apple is in a similar situation, where there are several ongoing lawsuits challenging its unfair pole position and market practices.
What does this decision mean for online advertising?
While the ruling may pave the way for new entrants or help to elevate smaller existing players, advertisers are likely to face significant challenges and growing pains. Without the scale of network effects and associate reach provided by Google, advertisers may struggle to achieve their desired reach.
What impact could this ruling have on consumers?
The ruling against Google is meant to foster a marketplace that encourages fair competition, leading to more choices, greater transparency, equal opportunities, and enhanced innovation—all drivers of economic growth.
However, while a fragmented market can boost competition, it may also reduce the value for users due to weakened network effects and increased search complexity. For example, a larger user base in search engines contributes to better search results, improved services, and more comprehensive data, let alone convenience. By allowing more competitors into the market, the effectiveness of search engines could weaken. It is here where the Faustian Bargain takes effect. It is a short-term convenience to long-term user choice and offers a diversity trade-off.
Learn more about how powerful platforms, like Google, influence both established and emerging enterprises in The Pervasive Dark Side of Digital Platforms, highlighting research by Andreas Schotter.
