Washington, D.C. — If you have a question, where do you go for the answer? If you’re like nearly 90% of people in the U.S. and EU, you turn to Google. Google’s enduring monopoly in search is one of the problems that leading economists are trying to solve.
“Consumer Protection Regulation for Digital Platforms” and “More Competitive Search Through Regulation,” released today, are the first economic papers that seek to provide practical solutions to the problem of how to regulate digital markets. They suggest what pro-competition regulation should look like, what it should seek to achieve, and on which principles it should be based. The papers, a product of the Digital Regulation Project and hosted by the Tobin Center for Economic Policy at Yale University, are intended to spark a conversation from which robust and specific policy recommendations can be implemented. Authors include Professor Fiona Scott Morton of Yale University, David Dinielli, senior advisor to Omidyar Network, and various other leading U.S. and European-based experts in economics and regulation.
Lawmakers in the EU are considering two new laws—the Digital Services Act and the Digital Markets Act—that together aim to make online environments safe and accountable, and to promote competition, fairness, and innovation. Similarly, the U.K. recently established a new enforcement unit to ensure compliance with the U.K.’s new digital regulatory regime. In the U.S., the Department of Justice, the Federal Trade Commission, and more than 40 state attorneys general have filed antitrust actions against some of the largest tech companies for illegally acquiring and maintaining monopoly power.
But the U.S., unlike the EU and U.K., has not yet undertaken any systematic effort to regulate online markets, despite the growing consensus that antitrust enforcement alone is not enough. Digital markets require pro-competitive regulation to encourage new entry.
“The goal of pro-competitive regulation is not just to remedy monopoly or put an end to other anti-competitive conduct,” said Scott Morton. “Nor are we telling companies what to do or how to do it. Instead, our proposals try to create pro-competitive ‘rules of the road’ that aim to lower barriers to entry, ensure a level playing field, promote fairness, and encourage new investment and innovation.”
“Consumer Protection Regulation for Digital Platforms” provides the economic rationale for consumer protection generally. It highlights a number of key differences between online and offline markets and explains what concerns these differences are likely to create for consumers and regulators. Finally, it provides a menu of policy proposals to address these concerns. As the paper explains, consumer protection facilitates choice, enhances confidence in the market, and sets standards and procedures for dispute resolution, all of which are critical to a functioning and competitive market.
“Markets don’t work as they should unless consumers can attend to the market in question, access relevant information about products, assess that information, and then act on it,” said Dinielli. “But online markets offer companies countless new ways to undermine consumers’ efforts in these regards through manipulative choice architecture and obfuscation, for example. When consumers don’t know what they’re getting, they won’t switch to new or better products and services. Incumbents’ market power grows and innovation withers. Bluntly, if we want to protect online markets, we have to protect online consumers.”
“More Competitive Search Through Regulation” identifies a set of 11 possible interventions that could be used to make the search market more competitive and to mitigate the harms flowing from Google’s current monopoly. More competition in search will encourage the creation of higher quality services for end users and higher quality services at lower prices for advertisers.
Right now, Google’s market power in search allows it to do the opposite. Google has crowded the initial pages of search results with ads and other monetized content. This makes it harder to find useful content, and harder for useful businesses to get consumers. Government antitrust lawsuits explain that Google has forced potential rivals to pay significant amounts for placement, increasing the likelihood that its market power persists. Further, it is using search and Android to exclude rivals from the next generation of connected products, the Internet of Things. These monopolies generate staggering profits: each year, U.S. advertisers pay Google $40 billion to place advertisements on its search engine results page. End users can be expected to pay above competitive levels in attention and data for the services they receive, and, in the long run, they also will bear the burden of the overcharges paid by advertisers who pass those through to retail prices. Therefore, policy makers must find a way to increase competition in search, whether through antitrust remedies or regulation.
“Google Search doesn’t necessarily provide results that are best for consumers; Google provides users the search results that are best for Google. Google’s monopoly in this critical service allows it to extract rents both from end users (in the form of attention and data) and from advertisers (in the form of cash payments) which has distributional consequences,” said Gregory S. Crawford, professor of Economics at the University of Zurich.
About the Digital Regulation Project and the Tobin Center
The Digital Regulation Project is a collaborative effort of experts in economics and regulation in the US, the UK, and the EU who have studied, and are committed to the improvement of, competition in digital markets. The Project is hosted by the Tobin Center, which enables more policy-relevant research at Yale and also serves as a platform for leading economists to share independent policy recommendations.
Omidyar Network is a social change venture that reimagines critical systems to build a more inclusive, equitable, and resilient society. We invest in new models and policies to ensure individuals have the social, economic, and democratic power to thrive.
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