The Google search case in Europe: tying and the single monopoly profit theorem in two-sided markets
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This paper provides an economic and legal theory of harm applicable to the case against Google in Europe over search bias. So far, no clear legal and economic theory has yet been delineated by the European Commission, nor consensus in the literature has emerged with regard to the theory of foreclosure that could support the case, or with regard to the specific form of abuse of dominance applicable under European law. The paper shows that the law and economics of tying applies to search bias. From a legal standpoint, it is not necessary to rely on the more formalistic elements of Article 102 TFEU, or to characterize Google as an essential facility, in order to find a valid legal theory of harm. We show that Google’s conduct of linking its proprietary vertical (or specialized) search platforms to its horizontal (or general) search platform through visual prominence, as it has done with Google Shopping, fits within the legal boundaries of tying under European law. From an economic perspective, we show that the two-sided nature of both horizontal and vertical search provides compelling reasons why foreclosure of competition may be profitable, and why the single monopoly profit theorem may fail in this context. As we show in the paper, by tying vertical search to general search through visual prominence, Google can attract additional advertisers on its vertical search platform that would have possibly advertised on competing vertical search platforms without a tie. The effect of tying is a restriction on competition in vertical search that deserves antitrust scrutiny.
KeywordsTying Two-sided markets Single monopoly profit theorem Abuse of dominance Search bias Article 102 TFEU
JEL ClassificationK21 L10 L12 L41 L43
The authors are grateful for comments on earlier versions from Michael Trebilcock and participants at the University of Chicago Law and Economics Workshop, the Siena-Toronto-Tel Aviv Law and Economics Workshop, and the Canadian Law and Economics Association’s Annual Meeting.
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