Regulators Should Get Real About Google and the IT Industry

Regulators need to understand that temporary market share does not equate to enduring market power.

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The Supreme Court is leaving in place a federal law that gives telecommunications companies legal immunity for helping the government with its email and telephone eavesdropping program.

Robert Hahn is director of economics at the Smith School, University of Oxford and chief economist at the Legatum Institute. Peter Passell is a senior fellow at the Milken Institute and the economics editor of the Legatum Institute's Democracy Lab. They are cofounders of Regulation2point0.org, a web portal on regulatory policy.

The competition police, it seems, have been very busy on both sides of the Atlantic. The Federal Trade Commission is reportedly wrapping up a 15-month investigation of Google, apparently zeroing in on the search giant's alleged inclination to give short shrift to competitors' page placement. Meanwhile, Brussels has been doing its own number on Google, which is apparently about to settle allegations that it is giving its own products an edge in search results. And did we mention Microsoft, which is once again being taken to the woodshed to answer for its lack of enthusiasm in designating rivals' Internet software as default browsers in Windows?

We don't begrudge the regulators their chance to look twice at the way information technology mega-players treat their competitors. But we are beginning to lose patience with activist agencies that ignore the recent history of IT in equating temporary market share with enduring market power. Indeed, anybody who's been paying attention ought to have figured out by now that information technology is simply moving too fast to allow even the most nimble companies to grab the market goodies and lock the door behind them.

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Consider the evidence:

  • When trustbusters in the United States and the European Union went after Microsoft, the chief worry was that Gates and Co. would leverage their dominance in Windows to dominance in applications software—notably in Internet browsers. Yet, a decade later, Google's Chrome browser leads Microsoft's Internet Explorer, and the combined market share of Chrome, Firefox, and Safari is more than twice that of Internet Explorer. These days, hardly anybody (except Microsoft's government minders) doubts that consumers between the ages of 5 and 75 are able and willing to download any software that appeals to them.
  • The iPhone took the market by storm when the first version was released in 2007. And the company's margins soared to levels that sure looked like market power. But five years later, Samsung sold twice as many smartphones as Apple, and Google's Android operating system was the largest smartphone platform by far. The introduction of the iPhone 5 may allow Apple to claw back. But that's just the point: Nobody can expect to dominate an IT market for long.  
  • In 2010 Apple's iPad cast the same spell over the market as the iPhone had in 2007, and helped make Apple the largest corporation in the world (by market cap). Two years later, one survey suggested that Amazon's Kindle Fire had taken a huge bite of this Apple, reducing its share to roughly half. And lest we forget, Samsung never gives up without a fight.
  • Facebook owns the market for nonbusiness social networking. But with Google+ out there, who knows for how long? And then, of course, Mark Zuckerberg is returning the favor, challenging Google in search.
  • Speaking of Google's nonexistent lock on Internet searches, the Microsoft-Yahoo search alliance now has 28 percent of the market. Meanwhile, Microsoft claims consumers prefer its Bing search engine by two-to-one.
  • The competitive threats to the big guys come from anywhere and everywhere. Yes, big companies are in each other's faces, but upstarts can become very big very quickly. Pinterest (bet you never heard of it) is now squarely in the social networking game, giving LinkedIn and Instagram a run for market share.
  • [See Photos of The Evolution of the iPhone.]

    In a hypercompetitive environment like this, where the product mix sometimes changes faster than Lady Gaga's wardrobe, antitrust regulators would do well to pick and choose their interventions carefully. And to help get them there, academics really need to provide a more careful accounting of the state of competition in IT.

    But habits die (especially) hard in government. Ultimately, the regulators and their political masters may need to learn the hard way that interventions that don't take careful account of competitive forces in the IT industry can frequently do more harm than good.

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