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Law and Economics Workshop: Google and Search-Engine Market Power

Start/End Monday, October 22, 2012 04:20 PM EDT -- 06:10 PM EDT
Location Name JGH - Case Lounge

The Center for Law and Economic Studies' Guest speaker for today's Law and Economics Workshop will be Mark R. Patterson, Professor of Law, Fordham University School of Law, presenting "Google and Search-Engine Market Power."

All are welcome.

A significant and growing body of commentary considers whether possible manipulation of search results by Google could give rise to antitrust liability. Surprisingly, though, little serious attention has been paid to whether Google has market power. Those who favor antitrust scrutiny of Google generally cite its large market share, from which they infer or assume its dominance. Those who are skeptical of competition law's role in regulating search, on the other hand, usually cite Google's "competition is only a click away" mantra to suggest that Google's market position is precarious. In fact, the issue of Google's power is more complicated and interesting than either of these approaches suggests.

The commentary on Google has not focused on information as a product and generally has not considered the ways in which it differs from other products. One important characteristic of information products is that output generally can be expanded at low cost.  As a result, restriction of output is not typically an effective way to exploit power, which makes market share an inappropriate measure of power.  A second key characteristic is presented by Arrow's paradox regarding information: "its value for the purchaser is not known until he knows the information, but then he has in effect acquired it without cost." In many instances of search, a consumer will be seeking information only in circumstances in which she will be unable to evaluate the quality of the information she receives. Significantly, this is the case for the search information offered by many of the firms who have complained about Google's practices; these competitors are so-called "vertical search engines" that offer information about products and prices in particular markets.  Consumers searching for such information often will not have prior information against which to compare the information they are receiving, which makes it plausible that Google could manipulate the results it provides. This lack of transparency in quality can give an information provider market power, just as can an absence of transparency in price for other products.  A method for measuring the magnitude of this sort of power is offered, focusing on the prices charged for placement in the results of Google's AdWords advertising program.