Today the European Union imposed a $5 billion fine on Alphabet Inc., owner of Google, for antitrust violations. The punishment illustrates the power of that most abiding of monopolists, government, to extract rents and impose deadweight losses.
The EU’s core theory is that Google improperly pressures smartphone manufacturers to bundle Google apps with Android, Google’s free smartphone operating system.
There are obvious pro‑competitive reasons for Google to want its free operating system to carry its search engine and other apps. For one thing, the apps’ presence is why the operating system is free. By making money from its apps rather than from licensing fees, Google reduces the cost of smartphones. Android-equipped smartphones are sold at a wide range of price points.
Google allows competitors’ apps on Android. A user can download one in about a minute. She can easily hide Google’s apps and use only a competitor’s map, browser, or messaging service. In return for creating a free and open and successful operating system, Google seeks a modest head start for its apps. That is not much to ask.
The EU does not see it that way. It claims that Google’s bundling its apps with its operating system stifles innovation.
To engage in the bundling for which it is supposedly so blameworthy, however, Google first had to create the operating system on which the bundling occurs. Put another way, it had to innovate. Yet it finds itself branded a lawbreaker and a public enemy. Such is the fate of an innovator in the EU.
The EU regulators think their ruling will lead to better apps. It is just as likely to lead to more licensing fees and fewer open platforms. The regulators are claiming, in effect, that they can efficiently guide technological evolution. They can’t.
A government agency devoted to stock picking would be bad at picking stocks. A government antitrust agency will be bad at predicting, never mind guiding, industrial trends. Most market analysists can’t foresee much of anything more than a year or two out. No matter. Brussels does not concern itself with the nirvana fallacy.
The EU’s competition commissioner, Margrethe Vestager, speaks piously of combating greed. Just because bureaucrats deal solely in words does not mean they talk sense. Entrepreneurs build new products. Bureaucrats build nothing. Intoning about fairness, the bureaucrats snatch the entrepreneurs’ return on investment. So the entrepreneurs build fewer new products.
“Not only do politicians tend to think no further than stage one,” observes Thomas Sowell, “the laws and policies they create tend to proceed as if other people do not think beyond stage one.” But they do. If you cap a baker’s prices, you’ll get less bread.
Technology firms must endure the occasional thumbless antitrust intervention. The prosecution of IBM in the 1970s raised prices and devastated IBM’s capacity to innovate. The prosecution of Microsoft in the 1990s achieved nothing. These lawsuits look silly today.
Do the EU’s proud leaders expect time to be any kinder to their reprobation of Google? Did they ask this question?
Also published by Forbes.com on WLF’s contributor page.