The European Union’s decision to fine Google $5.1 billion for abusing its dominance in the smartphone business unearthed some dubious corporate practices, but the penalty and an order for Google to change its practices are, regrettably, unlikely to make the technology industry more competitive.
After a yearslong investigation, Europe’s top antitrust official, Margrethe Vestager, this month said that Google had unfairly exploited its market power by imposing restrictions on manufacturers like Samsung that use the company’s Android software on their smartphones. This case is important because about 80 percent of smartphones sold in Europe and globally run on Android, and Google is by far the largest player in internet search. The company is also the biggest player in online advertising, with a nearly 40 percent market share last year, and it has a commanding presence in a number of other internet businesses, like video, email and maps.
The European Union had three main complaints: Google required cellphone companies that wanted to offer its Play app store or search to preinstall 11 of its apps as a bundle, whether they wanted all of them or not. The company gave the largest manufacturers money if the only search they installed was Google’s. And the company prohibited manufacturers from developing phones on altered versions of Android not approved by Google if they wanted to use any of its other services. The company strongly disputed the allegation that its practices are anticompetitive, arguing that they are designed to help recoup Google’s investment in Android, which it licenses free to device manufacturers. Google, which plans to appeal the decision, asserts that Android is a much more open and competitive platform than its main rival, which is used by the iPhone, in which Apple controls both the device and the software. Indeed, Android devices tend to be cheaper than iPhones because manufacturers like Samsung, Motorola and LG make competing phones.
The European case is strongest when it argues against Google’s exclusionary requirements — that cellphone makers not produce devices with other versions of Android and that they install only the Google search app … But the larger problem with the union’s case is that it’s unlikely to shake Google’s dominance. For starters, while a $5.1 billion fine is large in absolute terms, it’s a relative bargain for Google and its parent company, Alphabet, which had $103 billion in cash and securities warming its accounts at the end of March and had nearly $13 billion in profits last year. Even more important, billions of people around the world are already accustomed to using the company’s apps and services on their Android phones and are likely to stick to them. Even new users will most likely gravitate toward Google even if the company’s apps are not preinstalled because of the superiority of many of its products and because so many other people use them — the so-called network effect.
This case highlights the importance of more proactive and thoughtful antitrust enforcement and regulation …
Antitrust officials have a difficult job: By the time they bring enforcement cases it can be hard to reverse the harm that has already been done. It is also difficult to foresee and prevent bad outcomes. That’s why it is important that lawmakers and regulators use all the tools they have to encourage competition and fair play.
— The New York Times, July 19, 2018