TCS Daily


Giving Competition a Bad Name

By Dave Kopel - September 18, 2007 12:00 AM

This week the European Court of First Instance ruled on Microsoft's appeal of the 778 million Euro antitrust fines (over a billion U.S. dollars) which the European Commission has imposed on Microsoft. To get a sense of the anti-competitive nature of European Union "competition" law, let's take a look at an issue which arose after the 2004 European antitrust case.

Google markets itself as an innovative 21st century company, but in recent years it has been following a failed business model from the previous century: Trying to game the antitrust laws to suppress the firm's competitors.

The firm has been remarkably successful at it, as bureaucrats' interpretations of laws in Europe have grown so crazy that Google has been able to use them to get government help in taking business away from smaller competitors.

Google has the biggest search engine market share by far. According to searchenginewatch.com, as of April 2007 Google performs 55.2 percent of all U.S. Internet searches. In some countries, such as Germany, Google's market share is far higher.

Dominating Market

The number actually understates Google's dominance. Google also provides the search results for America Online, which has 5.4 percent of the U.S. market. As a result, three out of every five U.S. Internet searches get their results from Google.

After Google, the most popular search engines are Yahoo, with 22 percent, and Microsoft, with 9 percent.

Google's search engine gets plenty of business from people who like it and want it. Nonetheless, Google works hard to get companies to put its search engine on people's computers whether they want it or not, and they're not at all shy about using government to force other companies to install it even when they don't want to.

Pushing Product

Google has an agreement with Sun Microsystems to attach its search engine to Sun's widely used Java software program, which supports Web presentation of everything from database information to moving graphics.

To encourage Web site programmers to use Java, Sun gives its consumer version for free to PC users. And because of the Google-Sun deal, today a standard Java installation attaches a Google toolbar to the consumer's browser.

Likewise, Mozilla gives away its Firefox browser for free, and Google pays Mozilla handsomely for incorporating a Google search box in the browser and setting the program to open on the Google home page by default.

There's nothing wrong with Google using its enormous corporate resources to form private partnerships aimed at increasing its market share. But the antitrust laws are perverted when a company uses them to prevent competitors from creating private partnerships exactly like those that Google uses.

Similar Deals

For example, in a deal similar to Google's deal with Mozilla, Yahoo has partnered with PC manufacturers to preset a search box on the latest version of Microsoft's web browser, Internet Explorer 7. As a result, if you buy a Hewlett-Packard computer, it will be preset to use the Yahoo search box in Internet Explorer. Other manufacturers can make other deals, or they can leave the browser as Microsoft set it, which means the default search engine is Microsoft's "Live Search."

In any case, anyone who does not like their computer's default setting can change it in about ten seconds with two mouse clicks.

The previous version of Internet Explorer didn't have a search box. Instead, IE would use Microsoft's search engine when the user entered a search term in the address bar. It was fairly simple to change the address bar to use a different search engine, although not blindingly easy. Installing the Yahoo Toolbar, for example, would make the address bar search automatically use Yahoo.

In addition, Microsoft's program respected consumers' choice in the matter. If you selected Yahoo as your preferred search engine and then updated to a newer version of Internet Explorer, the program would retain your preference. The Yahoo search box would remain in your browser.

Demanding Special Treatment

Despite Microsoft's accommodating approach, Google complained to the U. S. Department of Justice and to the European Commission that Microsoft was violating antitrust laws by allowing Internet Explorer 7 to copy the consumer's setting of her preferred address bar search in IE 6.

The U.S. Justice Department disagreed, realizing that since has Google a 60 percent share of Internet searches while Microsoft has just 9 percent, the chances Microsoft would take over the search engine business are not much better than the likelihood of Michael Vick getting an award from the Humane Society.

Yahoo also opposed Google's protest, pointing out that if the DOJ ordered Microsoft to do what Google was asking, computer users who had consciously set their Internet Explorer 6 address bar to search through Yahoo would find their choice disabled when upgrading to IE 7.

Unfortunately, DOJ's sensible decision was not the end of the story.

Complaining to EC

Google had also complained to the European Commission, which had already fined Microsoft over a billion dollars on other matters and was obviously not favorably disposed toward the Redmond-based software giant. American antitrust law can certainly be ambiguous, but competition law in the EC is so vague as to be Kafkaesque.

The EC accepted Google's argument, and Microsoft relented. That meant the EC's decision went into effect worldwide; now, for any user anywhere, the IE 7 upgrade won't copy the consumer's search preferences from IE 6. Instead, it prompts the user to choose a default search engine.

For experienced users who already have a clear preference for a particular search engine, the change makes no real difference—they'll just pick the one they know they want. Less technologically savvy consumers, however, who were using the Yahoo toolbar in IE 6 but not particularly aware of what company was implementing their searches, may end up switching to Google, if only because of Google's greater name recognition.

Googling Government

This search engine war has little real effect on most consumers, but there's a huge amount of money at stake for Google, Yahoo, Microsoft, and other computer firms. Thus they invest a good deal of time and legal fees in the fight over the issue.

All the parties recognized that an EC decision favorable to Google would take search engine users away from Yahoo, Microsoft, and others and give them to the firm that already had the biggest market share by far.

It shows just how bizarre the European Commission's competition laws have become that the EC claims to be promoting competition when it moves customers from companies with small market shares to the one that already has three-fifths of the market.

And most nonsensical of all is that the details of how we install a computer program written in Redmond, Washington have been decided by bureaucrats in Brussels.

David B. Kopel is the author of the book Antitrust after Microsoft, and writes on technology issues for the Heartland Institute in Chicago.

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8 Comments

This is how socialists desribed competition.
Socialism breeds political entrepreneurs instead of economic entrepreneurs.

The winners are the politicians and the political entreprenuers. The loosers are customers and voters.

Solution. Keep voting the bastards out until they get the hint.

Problem: Europeans can't vote for members of the European Commission
"While the Commission is the executive branch, the candidates are chosen primarily by the 27 national governments, meaning it is hard for the Commission to be thrown out directly by the voters."
From: http://en.wikipedia.org/wiki/European_commission#Legitimacy

So they are totalitarian socialists (communists?).

Do-gooder collectivists yes, totalitarians no
After all, being totalitarian requires a spine of the military bent in order to pull off.

name calling
Those Euro-nanny states already have a bad name. Some of them say their goal is that ALL the population work for the EU beaurocracy. Now there's even a rumour that when they get finished trying to shake-down, and hobble Microsoft they're going to go after McDonald's too. They will make the claim that it's unfair competition that McD bundles their hamburgers with their own buns! After that they are proposing that car makers may not bundle a certain brand of rubber tires with the car when they sell it. But instead the cars will have to sit on the lot, and be sold with no tires, and you have to go out and buy some other ones yourself.

Muleface
will love where the EU is headed. Just can't wait to hear his commentary espousing all those benefits and how the US should follow suit.

even worse
Candidates for the EC are presented for approval by the EC. The national governments cannot forward their own candidates, they can only decline to accept a candidate (and all that does in practice is delay that candidate from becoming an EC member, as he'll be put forward again at some other time).

And that's the body of kleptocrats that will soon govern Europe without any opposition as our governments are about to sign into law their "constitution" (now renamed something else for PR reasons) which will effectively sign over most of their powers to the EC and grant the EC farreaching abilities to grab even more power if it so desires.

Hillary
listen to Hillary (and indeed most leftist American politicians) and you'll hear it all...

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