EU’s Antitrust Actions Put Ideology Ahead of Consumers

Daniel Castro November 10, 2016
November 10, 2016

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Google today responded to concerns that EU antitrust regulators lodged in April about the company's businesses practices related to the Android mobile operating system. Specifically, the European Commission objected to three practices: 1) requiring manufacturers to pre-install Google Search and Chrome on their devices as a condition of pre-installing Google's app store, “Google Play”; 2) prohibiting manufacturers that pre-install Google's proprietary apps from selling devices with modified versions of Android; and 3) providing financial incentives to manufacturers that exclusively install Google Search on their smartphones and tablets. None of these concerns are valid.


First, the objections are premised on the fact that Google chose to make Android an open platform. If Google instead only sold Google-made devices, it would, by definition, control all aspects of the operating system plus the apps it includes on Android devices. Indeed, this is exactly what companies like Apple and Blackberry have long done with their respective mobile operating systems, yet the practice is not considered anti-competitive for them. If companies that make closed-source mobile operating systems can make these types of business decisions, then companies that make open-source ones should not be held to a different standard. The point is not that open systems are better than closed systems, or vice versa, but that companies should be free to choose whichever business model they wish, and consumers should be free to decide which they prefer. If regulators make unfair rules for open systems, they will skew the market in favor of more closed platforms and hurt innovative possibilities and consumer choice.


Second, there is no evidence of consumer harm. After all, Google's practices are not preventing other app makers from reaching users. Consider that Android versions of four popular apps—Facebook, WhatsApp, Facebook Messenger, and Instagram—have more than one billion downloads each. Apple Music, a direct competitor to Google Play Music, has more than 10 million downloads by Android users. And, this past summer, Pokémon Go set a record when users downloaded it more than 50 million times in just 19 days. Furthermore, app store alternatives to Google's are thriving. These include well-known marketplaces like Amazon Appstore and Samsung Galaxy Apps, as well as smaller providers targeting specific markets, such as GetJar, Mobogenie, F-Droid, and Aptoide. SlideME, which offers an alternative app store, even notes that more than 140 manufacturers have preloaded its app store on their devices. Moreover, since Android is open source and free to use, manufacturers can forgo all Google apps if they want and still use Android on their devices. Indeed, this is what Amazon did when it developed the "Fire OS," its own custom version of the Android operating system for the Kindle tablet. The Fire OS uses Silk as its web browser and Bing as its search engine—two non-Google apps.


Third, EU regulators seem willing to take anti-trust action against Google even though it is likely not in the best interests of EU consumers. For example, Google's careful management of the Android ecosystem is key to preventing fragmentation in the market, an untenable situation for app developers who must then produce different versions of the same app to make sure it works on all devices. Google has also created a consistent experience for users across different device manufacturers. For example, users can upgrade their phones and have all their software and settings migrate seamlessly.


The root of the problem with EU regulators’ complaints is that they are relying on outdated economic theories. They do not seem to understand that innovation-based industries, like mobile operating systems, operate differently than conventional industries. These differences include positive “externalities” (meaning myriad benefits for other industries and society), networks of interconnected applications and firms, the need for coordination across firms, and so on. Over the last two decades, anti-trust scholars who study “innovation economics” have made it clear that innovative industries are not widget industries and that applying traditional thinking about competition policy to them can lead to economically harmful results. Firms in innovative industries operate in what UC Berkeley economist Carl Shapiro describes as "highly dynamic" markets where "competition may take the form of a succession of 'temporary monopolists' who displace one another through innovation.” Unfortunately, the Commission has approached many anti-trust cases involving tech companies in the same way it does with non-tech companies, even though the market dynamics are quite distinct. Applying conventional approaches to these industries harms both consumers and innovation.


One reason for this is that EU antitrust policy is grounded in a theory that seeks to preserve competition for its own sake. As one EU competition scholar argues, “consumers’ interests are viewed as indirectly protected by the protection of competition, not as the direct objectives of this protection.” Moreover, EU regulators are willing to deem a firm's unilateral actions as anticompetitive, even when these actions benefit consumers and the EU’s will “protect inefficient competitors.” Whereas U.S. antitrust regulators must prove a company's actions harmed consumers, the EU imposes no such limitation. The result is that the EU is willing to protect EU competitors even at the expense of EU consumers.


Making matters worse, the Commission sees competition policy as part of its industrial policy toolkit. Thus, it takes anti-trust actions to favor European companies. When one member of the European Parliament argues the Commission should go after Google because it needs to show that “There’s a bazooka in Europe that can be shot at companies like Google,” it is clear these actions are not about European consumers, but about economic nationalism, which should have no place in democratic nations’ competition policy.


EU antitrust regulators should recalibrate their approach to nurture instead of impede the innovation-driven economy, and the first step would be to avoid taking any action that does not put consumers first. To date, the Commission has not had a good track record on this issue. But hopefully reason will prevail in this case so that, in the future, neither European nor foreign companies will be discouraged from investing capital in developing open-source software and market platforms that give consumers a wide array of choices.