Google’s ethically failed judgement incident
The European Commission is hitting Google with a fine of 1.49 billion euros (some $1.7 billion) for abusive practices in online advertising, saying the search and advertising giant broke the EU’s antitrust rules and abused its market dominance by preventing or limiting its rivals from working with companies that had deals with Google. Anyone who has suffered damage because of Google’s behavior can also claim compensation from Google through national courts. “Today’s decision is about how Google abused its dominance to stop websites using brokers other than the AdSense platform,” European Competition Commissioner Margrethe Vestager told a news conference. In response, Google’s senior vice president of global affairs, Kent Walker said: “We’ve always agreed that healthy, thriving markets are in everyone’s interest. We’ve already made a wide range of changes to our products to address the Commission’s concerns. Over the next few months, we’ll be making further updates to give more visibility to rivals in Europe.” The Commission is concerned that the practices have artificially reduced choice and stifled innovation in the market throughout the period. They have artificially reduced the opportunities for Google’s competitors on this commercially important market, and therefore the ability of third party websites to invest in providing consumers with choice and innovative services.
Websites such as newspaper websites, blogs or travel sites aggregators often have a search function embedded. When a user searches using this search function, the website delivers both search results and search adverts, which appear alongside the search result. Through AdSense for Search, Google provides these search adverts to owners of “publisher” websites. Google is an intermediary, like an advertising broker, between advertisers and website owners that want to profit from the space around their search results pages. Therefore, AdSense for Search works as an online search advertising intermediation platform. Google was by far the strongest player in online search advertising intermediation in the European Economic Area (EEA), with a market share above 70% from 2006 to 2016. In 2016 Google also held market shares generally above 90% in the national markets for general search and above 75% in most of the national markets for online search advertising, where it is present with its flagship product, the Google search engine, which provides search results to consumers.
As per Immanuel Kant’s Categorical Imperative, if an action is not right for everyone to take, it is not right for anyone. I can see, it is not possible for competitors in online search advertising such as Microsoft and Yahoo to sell advertising space in Google’s own search engine results pages. Therefore, third-party websites represent an important entry point for these other suppliers of online search advertising intermediation services to grow their business and try to compete with Google. Google’s provision of online search advertising intermediation services to the most commercially important publishers took place via agreements that were individually negotiated.
Starting in 2006, Google included exclusivity clauses in its contracts. This meant that publishers were prohibited from placing any search adverts from competitors on their search results pages. The decision concerns publishers whose agreements with Google required such exclusivity for all their websites. As of March 2009, Google gradually began replacing the exclusivity clauses with so-called “Premium Placement” clauses. These required publishers to reserve the most profitable space on their search results pages for Google’s adverts and request a minimum number of Google adverts. As a result, Google’s competitors were prevented from placing their search adverts in the most visible and clicked on parts of the websites’ search results pages. As of March 2009, Google also included clauses requiring publishers to seek written approval from Google before making changes to the way in which any rival adverts were displayed. If an action cannot be taken repeatedly, it is not right to take at all as per Descartes’ rule of change. An action may bring about a small change now that is acceptable, but if it is repeated, it would bring unacceptable changes in the long run. In the vernacular, it might be stated as once started down a slippery path, you may not be able to stop. This meant that Google could control how attractive, and therefore clicked on, competing search adverts could be.
In no free lunch rule, if something someone else has created is useful to you, it has value, and you should assume the creator wants compensation for this work. If Google make any product free for people, then people’s data when using that product becomes its value. With that data Google can run analytics and make products morestronger than any competetors. Therefore, Google first imposed an exclusive supply obligation, which prevented competitors from placing any search adverts on the commercially most significant websites. Then, Google introduced what it called its “relaxed exclusivity” strategy aimed at reserving for its own search adverts the most valuable positions and at controlling competing adverts’ performance. Google’s practices covered over half the market by turnover throughout most of the period. Google’s rivals were not able to compete on the merits, either because there was an outright prohibition for them to appear on publisher websites or because Google reserved for itself by far the most valuable commercial space on those websites, while at the same time controlling how rival search adverts could appear.
Google’s practices amount to an abuse of Google’s dominant position in the online search advertising intermediation market by preventing competition on the merits. Market dominance is, as such, not illegal under EU antitrust rules. However, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets. Today’s decision concludes that Google is dominant in the market for online search advertising intermediation in the EEA since at least 2006. This is based in particular on Google’s very high market shares, exceeding 85% for most of the period. The market is also characterised by high barriers to entry. These include very significant initial and ongoing investments required to develop and maintain general search technology, a search advertising platform, and a sufficiently large portfolio of both publishers and advertisers. Google has abused this market dominance by preventing rivals from competing in the online search advertising intermediation market. Based on a broad range of evidence, the Commission found that Google’s conduct harmed competition and consumers, and stifled innovation. Google’s rivals were unable to grow and offer alternative online search advertising intermediation services to those of Google. As a result, owners of websites had limited options for monetizing space on these websites and were forced to rely almost solely on Google. Google did not demonstrate that the clauses created any efficiencies capable of justifying its practices. Finally, Google is also liable to face civil actions for damages that can be brought before the courts of the Member States by any person or business affected by its anti-competitive behaviour. The new EU Antitrust Damages Directive makes it easier for victims of anti-competitive practices to obtain damages.
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