Former FTC Staff Memos Show Misunderstanding of Tech in Antitrust Analysis

2011-2012 FTC Investigation of Google

The 2011-2012 FTC investigation of Google's allegedly anticompetitive actions in search and ads saw the Bureau of Competition (BC) make a case for antitrust action and the Bureau of Economics (BE) make the case that the investigation should be dropped. The BC case was moderately strong and the BE case was somewhat less strong. The BC argued that Google had monopoly power in horizontal search, search advertising, and syndicated search and search advertising. On the question of whether Google had unlawfully preferenced its own content while demoting rivals, the BC recommended that the FTC proceed, but the BC argued that this was a close call and case law was not favorable to anticompetitive product design. On the question of whether Google had unlawfully scraped content from vertical rivals to improve their own vertical products, the BC recommended that the FTC proceed. On the question of Google's anticompetitive contractual restrictions on automated cross-management of ad campaigns, the BC recommended that the FTC proceed and that the restrictions should be condemned under Section 2. On the question of Google's anticompetitive exclusionary agreements with websites for syndicated search and search ads, the BC recommended that the FTC proceed and that Google should be condemned under Section 2. Throughout their arguments, the BC staff argued that Google's stated efficiency arguments were pretextual and that the actual impacts of Google's actions were to harm consumers and innovation. In a supplemental memo on mobile, the BC staff argued that Google dominated mobile search via exclusivity agreements and that mobile search was rapidly growing. The BC staff argued that Google's practices in mobile were harmful and used similar arguments to those made in the main memo. The BE staff strongly disagreed with the BC staff.

The BC staff made some good arguments and some arguments that are less good. Throughout the memos, the BC staff argue that Google's stated efficiency arguments are pretextual and that Google's actions actually harmed consumers and innovation. On the other hand, the BC staff sometimes argue that competitors were not actually harmed by Google's actions, seemingly based on the BC staff's predictions of the future, which are often wrong. A common theme throughout the memos is that the BC staff make arguments that assume a basic understanding of tech and assume that the reader will fill in gaps in logic while the BE staff engage more closely with the arguments, seemingly assuming the reader does not have a basic understanding of tech and explicitly making their logic more explicit. In many cases, the errors the BC staff make are ones that, at the time, anyone familiar with tech would make apparent errors.

Common Errors

At least in the documents provided by Politico, BE staff generally declined to engage with BC staff's arguments and numbers directly. For example, in addition to arguing that Google's agreements and exclusivity (insofar as agreements are exclusive) are procompetitive and foreclosing the possibility of such agreements might have significant negative impacts on the market, they argue that mobile is a small and unimportant market. The BE memo argues that mobile is only 8% of the market and, while it's growing rapidly, is unimportant, as it's only a "small percentage of overall queries and an even smaller percentage of search ad revenues". They also claim that there is robust competition in mobile because, in addition to Apple, there's also BlackBerry and Windows Mobile.

Between when the FTC investigation started and when the memo was written, BlackBerry's marketshare dropped dropped from ~14% to ~6%, which was part of a long-term decline that showed no signs of changing. Windows Mobile's drop was less precipitous, from ~6% to ~4%, but in a market with such strong network effects, it's curious that BE staff would argue that these platforms with low and declining marketshare would provide robust competition going forward. When the authors of the BE memo make a prediction, they seem to have a facility for predicting the opposite of what will happen. To do this, the authors of the BE memo took positions that were opposed to the general consensus at the time. Another example of this is when they imply that there is robust competition in the mobile space even though it was well known that Apple's iOS dominated and that RIM and Windows Mobile were in decline.

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