How Obama Could Crush Google and Hurt Us

By Bartlett Cleland

The Obama administration is well-known for its heavy-handed regulatory overreach, and letting government decide winners and losers instead of the free market. No better example of the Obama administration's contempt for free enterprise is at the Federal Trade Commission (FTC), which is currently considering how to proceed with its investigation into whether Google uses its position in Internet search to steer users to the company's preferred services and away from those of its competitors. And while the agency ponders whether to bring a formal complaint against the company, there's a real danger that it may confuse aiding Google's competitors with serving consumers.

These competitors seek to gain ground on Google not by creating innovative new products, or providing better services or advancing innovation, but rather by trying to convince the iron hand of government to squeeze them until they are sufficiently distracted from competing. Rather than trying to beat them in the marketplace, their cynical tactic is to gain a type of economic rent-seeking (when one entity appeals to the power of the government to gain a greater market share rather than focusing its efforts on providing better products or services at lower prices than its competitors). Resources are spent, but no new wealth is created.

Ultimately, this approach leads to government redistribution of wealth from successful companies to their competitors, even as it ignores the harm to consumers, such as higher prices and the stifling of new innovation. In today's tech space, for instance, Google's competitors lobby the government to impose limits on Google's ability to make money. Some have advocated for increased regulation of Google's practices; others argue for a costly, innovation antitrust lawsuit. In both cases, Google's competitors would gain market share not by providing products or services consumers want and are willing to pay for, but by convincing the government to do the dirty work for them.

Antitrust reviews, and other similar government investigations, have become a feeding frenzy for rent seekers. It's the worst form of policymaking: the government picks the winners and losers, but the real losers are the public. This scenario effectively puts that state in control of the pace of innovation, with government officials empowered to impose arbitrary restrictions on market participants, restrictions which consumers don't want and haven't asked for.

Ironically, even the market participants themselves have a hard time determining what the public wants next. Take, for example, the government's antitrust case against Microsoft: a mere 10 years later the whole question of desktop dominance seems silly. Today desktop software has been supplanted by cloud-based innovation. As multiple companies aggressively compete to lure customers to their family of products, the notion of a "desktop" outside of the office rapidly becomes quaint. In its zeal to ensure competition, the federal government missed that trend.

With respect to Internet technology, competition changes too rapidly, as technology continues to evolve, collapse, and create whole new product categories. A clear understanding of who competes with whom is beyond anyone's ability to predict, especially the government's.

And, despite what regulators seem to think, that is not a problem. It's simply the nature of the free-market that innovation happens quickly and unpredictably, with markets undergoing for rapid direction changes and speed alterations. In fact, the sheer pace of today's online marketplace makes innovation and government nearly incompatible, which is why it is so difficult to develop a modern application of antitrust law.

Furthermore, competition is seriously harmed if companies fear that merely gaining an edge on one's rivals will cause the government to intervene. Consider search functions on the Web. AOL and Yahoo! were once the giants of the search industry. The marketplace evolved rapidly, however, and today many other companies, like Google and Microsoft, enjoy market share even as those early search products have fallen in consumer satisfaction and market share. Consumers are still free to choose AOL or Yahoo! If they want to use those services, but the vast majority voluntarily choose other providers.

But even that may change as consumers begin to move away from "broad search" towards "specific search" services such as Yelp, which drives 40 percent of its traffic from its mobile app, or towards Kayak, which receives 72 percent of its volume from people who visit their Website directly, or even towards Facebook, which already has more than 1 billion queries a day.

So who, or what, is being protected by antitrust actions? Not consumers. If they don't like something, they won't use it. Innovation still holds the key for our greater economic future, so long as government doesn't get in the way.

 

Bartlett D. Cleland is Policy Counsel with the Institute for Policy Innovation (IPI).

This article originally appeared on TownHall and is republished with permission.

(AP Photo)

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