Google Search Practices under Investigation1

“Google has come up with many innovative products that have made a difference to our
lives. But that doesn’t give Google the right to deny other companies the chance to
compete and innovate.”
–Margrethe Vestager, European Commissioner for Competition, July 20162

Google
Google is well known as the leader in online search and advertising, making it the second largest
company in the world in terms of market capitalization. Although it doesn’t report search
statistics, it is estimated that Google handled over 2 trillion searches in 2015.

The worldwide leader in search, Google’s market share in general Internet search is estimated to
be greater than 60% in the United States, and greater than 90% in the European Union.

Google was founded in 1996, and went public in 2004. In 2015, they reorganized the company
into a conglomerate under the name of Alphabet, Inc. While they have a large and varied number
of business enterprises, website advertising and search still make up a huge percentage of
Google’s more than $77 billion in revenue. Google’s mission statement from the beginning was
“to organize the world’s information and make it universally accessible and useful.” Its
unofficial slogan was “Don’t be evil”.

Google Search Practices

Google is known as a “horizontal” (or general purpose) search engine as it seeks to return search
results over the complete Internet. This type of search is considered separate from “vertical”
search engines, which focus on returning results from distinct websites in a narrow category,
such as shopping or travel. A travel comparison site would be a vertical search engine, but serves
as a substitute product for Google for consumers who are searching for travel deals.

Price comparison websites are another form of vertical search site, where consumers can search
among many options for purchasing products from a wide range of retailers. Price comparison
sites (e.g. NexTag.com) relied on Google (and other horizontal search engines) search results and
advertising to drive consumers to its website. From there, consumers could compare prices on
thousands (or even millions) of products, and click through to retailers to make purchases. Each
click-through would then generate revenue for the price comparison site.

In 2008, Google launched Google Shopping as a competing price comparison option. When
consumers used Google to search for commonly purchased products on the Internet, some of the
top search results (both in terms of advertised results and organic search results) were for Google
Shopping. As these results were displayed at the top of the search results pages, results for
1
Kyle Anderson, Michael Baye, and Jeffrey Prince prepared this case to serve as the basis for classroom discussion
rather than to represent economic or legal fact.
2
“Antitrust: Commission take further steps in investigations alleging Google’s comparison shopping and
advertising-related practices breach EU rules” European Commission – Press release, July 14, 2016
competing price comparison sites were often moved to lower on the page, or even to a second or
third page. Since there is a strong relationship to location on the page and number of consumer
click-throughs, the result is that competing price comparison sites received fewer visitors and
reduced revenue.

Anticompetitive Allegations
As a result of complaints about the change in practices, both the United States Federal Trade
Commission (FTC) and the European Commission (EC) opened investigations to determine
whether Google’s search practices are potentially harmful to competitors and/or consumers.

The FTC launched the first investigation, looking into several related claims. Specifically, they
investigated the following claims:

“…that Google unfairly promoted its own vertical properties through changes in its
search results page, such as the introduction of the “Universal Search” box, which
prominently displayed Google vertical search results in response to certain types of
queries, including shopping and local. Prominent display of Google’s proprietary content
had the collateral effect of pushing the “ten blue links” of organic search results that
Google had traditionally displayed farther down the search results page. Complainants
also charged that Google manipulated its search algorithms in order to demote vertical
websites that competed against Google’s own vertical properties.3”

In addition to the FTC investigation, the EC filed a Statement of Objections, which is a

procedure that leads to a formal investigation by the Commission.

An April, 2015 press release outlined the concerns raised by European Commission:

“More specifically, the preliminary conclusions are:

 Google systematically positions and prominently displays its comparison shopping

service in its general search results pages, irrespective of its merits. This conduct
started in 2008.
 Google does not apply to its own comparison shopping service the system of
penalties, which it applies to other comparison shopping services on the basis of
defined parameters, and which can lead to the lowering of the rank in which they
appear in Google's general search results pages.
 Froogle, Google's first comparison shopping service, did not benefit from any
favourable treatment, and performed poorly.
 As a result of Google's systematic favouring of its subsequent comparison shopping
services "Google Product Search" and "Google Shopping", both experienced higher
rates of growth, to the detriment of rival comparison shopping services.
 Google's conduct has a negative impact on consumers and innovation. It means that
users do not necessarily see the most relevant comparison shopping results in
response to their queries, and that incentives to innovate from rivals are lowered as

3
Statement of the Federal Trade Commission Regarding Google’s Search Practices, In the Matter of Google Inc.,
FTC File Number 111-0163, January 3, 2013
they know that however good their product, they will not benefit from the same
prominence as Google's product.

The Statement of Objections takes the preliminary view that in order to remedy the
conduct, Google should treat its own comparison shopping service and those of rivals in
the same way. This would not interfere with either the algorithms Google applies or how
it designs its search results pages. It would, however, mean that when Google shows
comparison shopping services in response to a user's query, the most relevant service or
services would be selected to appear in Google's search results pages.4”

In July, 2016, the EC reaffirmed its ongoing investigation, while also outlining some additional
practices by Google that were deemed to be in violation of EC antitrust law. In that statement,
they summed up the charges against Google:

“The Commission considers that Google has a dominant position in providing general
internet search services as well as in placing search advertising on third party websites
throughout the EEA, with market shares above 90% and 80%, respectively. Dominance
is, as such, not a problem under EU competition law. However, dominant companies
have a responsibility not to abuse their powerful market position by restricting
competition, either in the market where they are dominant or in neighbouring markets.5”

Google’s Response
Not surprisingly, Google denies many of the claims being investigated by the FTC and the EC,
highlighted by a few important observations.

First, Google has had an undeniable impact on online shopping. As Google notes in a response to
the EC:

“The universe of shopping services has seen an enormous increase in traffic from Google,
diverse new players, new investments, and expanding consumer choice. Google delivered
more than 20 billion free clicks to aggregators over the last decade in the countries
covered by the [European Commission], with free traffic increasing by 227% (and total
traffic increasing even more).6”

Secondly, by looking only at shopping through search engines, the regulatory bodies
mischaracterize the way that the majority of consumers go about online shopping. Citing a recent
study of German online shoppers, Google notes that one third of consumers begin at Amazon
while 14.3% go first to Google, and only 6.7% to price comparison sites. In the United States,
55% of consumers start shopping at Amazon, 28% on search engines, and 16% go straight to
individual retailers. As a result, Google does not maintain a monopoly position in online
shopping, rather it trails Amazon by a wide margin.

4
“Antitrust: Commission sends Statement of Objections to Google on comparison shopping service; opens separate
formal investigation on Android” European Commission – Press Release, April 15, 2015
5
“Antitrust: Commission take further steps in investigations alleging Google’s comparison shopping and
advertising-related practices breach EU rules” European Commission – Press release, July 14, 2016
6
“Improving quality isn’t anti-competitive” Google Europe Blog, August 27, 2015
In addition, the incorporation of shopping more directly in the search results benefits consumers
by improving the quality of the search results. They note: “showing ads based on structured data
provided by merchants demonstrably improves ad quality and makes it easier for consumers to
find what they’re looking for.7”

While the change in Google’s search results may have negatively impacted one set of
competitors (i.e. price comparison sites), there is sufficient competition in online shopping to
ensure that consumers are not harmed. Further, Google’s attempts to improve its search model
would ultimately benefit consumers, and help Google better compete against online retail
websites such as Amazon and eBay. Online search and shopping are rapidly changing
marketplaces. While some changes may have a detrimental effect on certain types of businesses,
in general, the rapid pace of change benefits consumers and the market as a whole.

Finally, product design is an important dimension of how any company competes in the market.
Google has a responsibility to design its “product” (i.e. search results) in the way that it best sees
fit to serve the market. Otherwise, it could be at a competitive disadvantage and create
opportunities for new search engines to take over market share from Google. As such, Google
should be given wide latitude to design its products in the best way that it sees fit.

As a result, Google’s actions with regards to search results are not harmful and should not be
subject to investigation by the FTC or EC.

Determination
The FTC and the EC would rule separately based on the facts and the laws on whether Google’s
search practices constitute a violation of law and harmful to consumers and competition. While
there were a number of claims, the major concern could be summarized that Google is using its
dominant position in online search to give itself an unfair competitive advantage in online
shopping, which would be potentially harmful to competitors and consumers. And if this were in
fact the case, what remedies were necessary to prevent further harm.

7
“Improving Quality Isn’t Anti-Competitive, Part II” Kent Walker, Google Blog, Nov. 3, 2016