Wednesday, October 24, 2007 - The Progress & Freedom Foundation Blog

Pearlstein on Google & Antitrust

Steven Pearlstein, a business columnist for The Washington Post, has an interesting editorial up today wondering whether Google is the next AT&T, IBM, Intel or Microsoft in the sense that, like those companies, Google might be headed for increased antitrust or regulatory scrutiny based on its marketplace success:

With its proposed purchase of DoubleClick, Google has followed suit in drawing the scrutiny of the competition police, both at home and in Europe. The reason is simple: Like its predecessors, Google shows every sign of pulling away from the pack in a market that naturally tends toward a single, dominant firm.

Pearlstein goes on to explain how Google's business model works in layman's terms and then points out why there is little to fear from Google's proposed acquisition of DoubleClick:

Google has become the dominant player in search and Internet advertising because it had the best product to offer to advertisers, publishers and Internet users. Just as AT&T, IBM, Intel and Microsoft did, it has won its near-monopoly fair and square.

Here's where the antitrust law comes in. At its heart, the aim of antitrust law is to ensure consumers the benefits of lower prices and greater choice that come with competition. In most markets, that means ensuring that there are enough competitors. But in markets that tend naturally toward a dominant firm, competition comes not from a business offering the same product or service but from a new technology or way of doing business that comes along and upsets the terms of competition.

This is how MCI unseated AT&T in long-distance telephony and how Microsoft and Intel used the personal computer to challenge IBM's mainframe dominance. Today, it is how Google has used the Internet and open software to break Microsoft's hold on personal computing. And someday, a new idea will come along to supplant Google as Internet kingpin. Nobody knows what that idea will be -- not you, not me, not Google and certainly not the government.

I think that's exactly right and it gets to the point many of us here at the TLF often stress in our essays about antitrust and competition policy: Markets tend to be far more dynamic and unpredictable than policy makers care to give them credit for. Markets rarely operate the way textbook models claim. There is no such thing a "perfect competition," only the messy interaction of millions of marketplace actors and innovators. There was a time that it was unthinkable that anyone could compete against AT&T or IBM, for example. And now those firms are just two more players in markets that have been upended by sweeping technological change.

Google may be a big fish today, but they are not the only fish in the pond. Google's marketplace hegemony will continue to be challenged by other operators and technologies in the future, just as they have challenged some of the media, communications, and computing giants of the past.

posted by Adam Thierer @ 9:18 AM | Antitrust & Competition Policy , Internet