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One of the things that its very difficult for a free market zealot like myself to understand is why the European Union allows Microsoft Microsoft (and some 17 other such companies in the search space) to try and influence how Google Google operates in the EU. Free marketry always rather presupposes that companies compete with each other, not insist that their competitors must act so as to make them greater profits. And we generally think that people who are losing such competition and then run to the politicians to regulate the market are indulging in more than a little bit of rent seeking.

Thats what makes it so difficult to understand what the European Union is doing here:

The core of the deal between Google and Mr. Almunia, announced in February, is a system that would more prominently display rivals search services for finding hotels and shopping, among others when people conduct Google searches. Rival companies have lambasted the proposal, saying it would do little to help them compete more effectively in Europe, where Google powers more than 90 percent of searches in many countries.

Europe opens a formal antitrust investigation into accusations that Google has abused its dominance in online search, exposing the companys zealously guarded technology to unwelcome scrutiny.

In a study conducted over the course of nearly three weeks in April, Microsoft engineers modified the publicly available search page of its own search site, Bing, to operate like a Google search page under the terms of the proposed European settlement.

In monitoring the way that Bing users conducted searches for hotels and restaurants, Microsoft said, it found that people would mostly ignore the parts of the modified page supposedly dedicated to competitors. Instead, Microsoft found that users were 99 times more likely to click on the area of the page that Google would dedicate to its own services.

Why on earth should Googles page be set up so as to favour Microsofts offerings? The two companies are competing in the search space, correct? Well, go compete then instead of whining to the politicians.

Unfortunately I understand all too well what is going on here. Which is that across continental continental Europe no one really believes in free markets in the first place. And we shouldnt really be blaming Microsoft or any of those others (like Foundem and so on) for taking advantage of the strange beliefs of the politicians.

The free market approach is that even if someone is indeed a monopoly (and Google isnt but its close) thats not a good enough reason to regulate how the company operates. Because the important point is not monopoly but whether that monopoly is contestable. For if a monopoly is contestable then if someone tries to use their monopoly power (as, arguably, the Chinese did in the rare earths space) to raise prices or otherwise rook consumers then competition will arise to contest that monopoly. A contestable monopoly is only stable if it continues to act as if it isnt a monopoly. Thus theres nothing we need to do about companies that have very large market shares, as long as it is possible for others to enter that market. As long as theres contestability we can rely upon that threat of future, possible, competition to make sure that the monopoly isnt exploited.

But thats a bit of free marketry that the Continentals dont really believe in. They take the view that anyone who is a market leader needs to be regulated. Partly because they genuinely dont understand this idea of a contestable monopoly and partly because thats just not the way the Continental political classes work. They see themselves as the natural regulators of the economy: the bureaucracy, if not the politicians, should be deciding who gains what out of the market. Unalloyed market activity just isnt something that they really believe can actually happen, everything requires that there is regulation.

Original post:
Why Does The European Union Consult Microsoft On How Google Should Operate?