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Back in 1980, Milton Friedman, the University of Chicago economist, starred in a public-television series called Free to Choose, in which he presented his free-market ideas and, famously, told a young man that everything he knew about monopoly power was wrong. In the United States, monopoly was synonymous with evil, an idea going back to Teddy Roosevelt and the original trustbusters, who saw oil cartels and rail syndicates as enemies run by sneering men with bulbous noses. But Friedmans surprising assertion was that monopolies were not the result of greedy people amassing and abusing power but, rather, of stupid government rules. I believe if you examine the sources of monopoly you will find that almost all those sources are government intervention, Friedman argued. The cure for monopoly, he said, was reducing rules and restrictions, which would inspire market competition and prevent a single company from exclusively holding any corner of commerce.

American antitrust law has followed philosophies ranging from trustbuster to the Chicago School. But both sides of this dispute have something in common: they see monopoly power as dangerous because it limits competition and raises prices, hurting consumers. This emphasis on prices is central to the American antitrust world view. Depending on the ideological leanings of the particular Presidential Administration, the goal keeping prices down has been pursued by increasing government (the Roosevelt school of thought) or by reducing it (as in Friedman's message).

Price is the key word in American antitrust lawhigher prices are bad, and lower prices are good. For the European Union, which wrote its own antitrust laws decades later, after the rise of the Internet, the key word is innovation. Monopoly for the Europeans can raise prices, lower prices, or have no impact on prices but still be dangerous because it stifles new ideas. The European Commission has taken a forceful global role in establishing that view, especially under Margrethe Vestager, the current commissioner of competition, who, this week, levied a record $2.7 billion fine against Google for abusing its monopoly power.

The commission said that Google unfairly preferred its own services to those of competitors. When people searched for local restaurants, mechanics, or other services, the search engine placed its own Google-branded ratings far above those of competitors such as TripAdvisor and Yelp. In other cases, Google would put, on its own pages, quotes from places like TripAdvisor and Yelp, decreasing the motivation of searchers to go visit those other sites and depriving them of audience and advertising revenue. Google was, essentially, absorbing their entire business model into itself, and taking all of the ad money that went along with it. The company was doing this, in the opinion of the European Union, by abusing its power as the dominant search engine. (Google is even more dominant in Europe than it is in America, if such a thing is imaginable.) Google, of course, rejected these claims, and is considering an appeal.

What is perhaps most striking about the European Unions decision is that the complaints were all from big, U.S.-based firms: not only TripAdvisor and Yelp but also Microsoft, Oracle, and others. They had pursued Google through the U.S. Federal Trade Commission, to no avail. (Government antitrust lawyers found evidence that Google harmed competitors and consumers but chose not to prosecute.) Under the American antitrust model, a monopoly is a company that clearly controls something of value and uses that power, ultimately, to raise prices, thus hurting competition and consumers.

Googles case shows that the antitrust battle is much more confusing in a digital world. How am I harmed when one service that charges me nothing offers me ratings written (for free) by other users, but doesnt show me the ratings provided by an entirely different free service? It would be hard to explain to Teddy Roosevelt that someone receiving something for free is being harmed because of a lack of other (free) options. It should be better to have multiple sources of reviews and multiple ways of assessing businesses; it should be better for advertisers to have different companies selling ads. But how do we define better in these cases? Google is not the sort of obvious enemy that Teddy Roosevelt could point at with his sword and run up a hill to attack. Nor is there a government switch that can be turned off to create a Friedman-esque release from monopoly power.

The European Union defines antitrust more broadly than U.S. law does, and thus has more subtle lines of attack. It prohibits firms that hold a dominant position on a given market to abuse that position, for example by charging unfair prices, by limiting production, or by refusing to innovate to the prejudice of consumers. The phrase for example is doing a lot of work. It is an acknowledgement that government rules and business practices evolve, side by side. Define antitrust as raising prices, and businesses will find a way to abuse monopoly power by lowering prices. Regulators in Europe have discretion to evolve alongside the marketplace. Arguably, their discretion is too vast. It has been hard for anybodygovernment or private sectorto properly predict how future innovation will happen, and how best to support it. However, innovation (and, one might add, data) is clearly as important (if not more important) in this coming century as price. The E.U. laws are, surely, not perfect. But they are closer to the twenty-first century than U.S. laws written at a time of fairly clear oil and railroad monopolies. American law has been stuck in the old continuum between Roosevelt and Friedman. Neither of them is a good guide to this new terrain.

The rest is here:
Teddy Roosevelt Wouldn't Understand the EU's Antitrust Fine Against Google - The New Yorker