Antitrust As the Enemy of Innovation, and Therefore the Enemy of Consumers

Michael Giberson

Antitrust regulators at the FTC have taken adverse interest in Google’s activities. At Regulation2point0, Robert Hahn and Peter Passel comment (links in original, highlighting added):

… perhaps the FTC probe may prove to be just another minor bump on the road to riches.

But there are reasons to believe that it will prove to be a big distraction. The investigation will apparently focus on the search-advertising business, which is Google’s bread and butter. And the specific concern – that the company is using its pre-eminence in searches to direct consumers to Google-related enterprises – could be problematic because it potentially threatens Google’s ability to exploit economies of scope and scale.

This doesn’t necessarily mean, of course, that the rest of us should identify with Google’s worries. But the parallels with the global assault on Microsoft’s dominance in PC operating systems and Internet browsing, which in the end served hardly anybody’s interest, are troubling.

For starters, serial run-ins with regulators have a way of changing New Economy corporate cultures, and not for the better. An army of lawyers and consultants, who are paid not to think outside the box, gain influence over strategic planning. Why risk the wrath of government in the next acquisition, or the next challenge to other established enterprises? And along with the lawyers come the lobbyists, who in the process of speaking money to power further pollute American politics and policymaking.

This might all be worth it (from the public’s perspective), if one could count on antitrust policy to put the interests of consumers first. But antitrust is built on models of slow-changing markets in which the name of the game is to prevent sellers from charging more than costs. By contrast, high technology in general and information technology in particular is all about charging more than costs – that is, earning amazing returns on amazing innovations. And market concentration says more about who’s king of the hill now than who has the power to stop others from becoming king of the hill tomorrow.

Microsoft, you may recall, was pilloried for its “impregnable” advantage in Internet browser software thanks to the dominance of its Windows operating system. But somebody forgot to tell hundreds of millions of PC users, who turned to Firefox, Safari and Chrome when Microsoft became complacent – or too distracted by regulation to defend its turf with improved versions of Internet Explorer. Today, IE is down to 55 percent of the market – and its share is still falling in spite positive reviews for the latest version.

Ah, but Google really does have a hammerlock on web searching, you say.  Look again. In the past year, Google has lost 10 percentage points of the market, ironically, almost all of it to Microsoft’s Bing. Moreover, the mojo that made Google seem invincible seems to be wearing off. Yes, the Android operating system has made a giant splash in mobile devices, but not at the expense of Apple’s iPhone. Yes, Google’s efforts to move computing and information storage to The Cloud may yet pay off. But any number of competitors in the cloud, including Amazon, Netflix and Apple, are doing just fine.

Antitrust isn’t an idea whose time has come and gone. But it has entered a phase in which the old ways apply awkwardly, at best, to new industries. And the consequences of missteps – especially for economies like ours, whose only shield against senescence is innovation – are growing. Does it make sense to take Google down a peg? We’ll probably only find out when it no longer matters.

Antritrust regulations are too frequently the means by which imagined harm to consumers is used as a tool by one (or more) companies to hobble a more successful competitor. Maybe it isn’t “an idea whose time has come and gone,” but consumers would be better of if it were on the decline.

2 thoughts on “Antitrust As the Enemy of Innovation, and Therefore the Enemy of Consumers

  1. “When increasing amounts of one factor of production are employed in production along with a fixed amount of some other production factor, after some point, the resulting increases in output of product become smaller and smaller. “-

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