Congress Investigates Google-Yahoo Deal

Tomorrow I’ll be testifying before the House Judiciary Committee’s Task Force on Competition Policy and Antitrust Laws (apparently it will be broadcast here) on the Google-Yahoo Deal. The Senate is also holding hearings. I’m happy to see this level of Congressional scrutiny because, as On the Media asked last week, what happens if a “single company becomes the gateway to the Internet?” Consider this exchange between Bob Garfield and Drake Bennett:

BENNETT: [T]here have been a couple of cases, lawsuits against Google, where companies have accused Google, Inc. of basically blackballing them. . . . what Google said was – that’s none of your business. I mean, we get to decide how we rank information, and this is basically free speech.

GARFIELD: It makes some people think of the railroads, which were owned by private companies but which nonetheless, because they were essential monopolies and because they so influenced the public economy, [were extensively regulated].

I think Garfield meant to say “essential facilities” . . . but in any case, the point is well-taken. My testimony will extend that railroad analogy a bit. . . but there are also many traditional antitrust concerns with the deal.

For example, Ben Edelman at Harvard Business School has done some excellent research on the issue; he’s argued that:

The proposed deal would substantially reduce Yahoo’s ability to offer competitive payments to web site publishers seeking to show pay per click (PPC) ads.

Other Google practices, particularly Google’s restrictions on export and copying of advertisers’ campaigns, further hinder competition in Internet advertising — without any countervailing benefit whatever.

To Edelman’s concerns, I would add a more general worry about the fairness of dominant intermediaries online. Here is the introduction to my testimony; I’ll try to post more of it later this week:

American search engines are among the most innovative services in the global economy. They provide extraordinary efficiencies for advertisers and consumers by targeting messages to viewers who are most likely to want to receive them. In order to attract more users, search engines use revenues from advertising to organize and index a great deal of content on the World Wide Web. Like the major broadcast networks they are now beginning to displace, they provide content (organic search results) in order to sell advertising (paid search results).

Recent deals between major search engine providers have provoked scrutiny because they suggest undue coordination of competitors in an already concentrated industry. Certainly antitrust authorities should take into account the unique consumer protection and privacy issues raised by the consolidation of platforms for online advertising. However, to the extent this market naturally tends toward concentration, conventional antitrust analysis may not be able to address the worries of the Committee. In other words, policymakers may need to focus less on promoting competition and more on regulating the inevitable near-monopolist by assuring it does not treat either advertisers or consumers unfairly.

Though I believe such concerns will ultimately warrant creation of a Federal Search Commission to parallel the Federal Communications Commission, I realize that the Committee is now seeking more immediately practicable responses to concentration here. I will therefore focus my testimony on some legislative and regulatory steps that could reduce opportunities for major search engines to abuse their dominant positions. In order to reduce opportunities for clickfraud and unfair treatment of indexed entities, qualified transparency will be needed in order to open up the “black box” of search engine operations to at least some third parties. Moreover, some of the obligations that search engines have advocated for telco and cable companies (in the name of “net neutrality”) should be applied to search engines themselves (to assure the fairness of these powerful intermediaries).

The more one considers the type of data Google gathers, the dilemmas it faces, and the cultural power it wields, the less acceptable a completely “black box” dominant search engine seems.