Biden’s officials wanted the company cut down to size for ideological reasons. But why didn’t Trump drop the case?
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A federal district court last year found Google guilty of “maintaining a monopoly in two product markets in the United States—general search services and general text advertising—through its exclusive distribution agreements.” In these pages former Attorney General William Barr called it “the most important antitrust case pursued by the U.S. government in decades.” Yet the government presented no evidence that consumers were harmed. It didn’t argue that Google exhibited classic monopoly behavior by restricting supply and raising prices, since consumers pay nothing for Google’s internet search service.
Google’s offense was using its massive resources to maintain its market position. Specifically, Google pays Apple $20 billion a year to have its search engine the default setting on the iPhone. The court deemed this payment an antitrust violation, and starting this week the court will hear arguments on the government’s proposed penalties.
The court doesn’t appear to have given any significant weight to the growing evidence that competition from Amazon and TikTok has cut Google’s market share from 90% of search advertising revenues in 2015 to under 50% today. While Google was attacked for gobbling up competitors, no note appears to have been taken of the baby Googles, roughly 2,000 startups by former Google employees (including TikTok) that are developing artificial intelligence and other platforms that could leave Google tomorrow in the same place where Sears finds itself today.
The entire case and the guilty verdict appear to have been based on the $20 billion Google payment for the default option on the iPhone. But such payments are common in our economy. Paying for preferential placement, whether on a grocery store shelf or billboard, isn’t illegal. According to the Justice Department, “slotting contracts [payments for retail shelf space] are likely to be elements of the normal competitive process . . . and are unlikely to involve manufacturer attempts to anticompetitively exclude rivals or retailer attempts to earn monopoly rents.” Google’s payment to Apple for favorable placement on the iPhone is fundamentally the same as Coca-Cola’s payment to Giant, Safeway or Piggly Wiggly for favorable shelf placement.
Why would any market leader, like Coca-Cola, Procter & Gamble or Google, pay for prime placement on store shelves or a default option on smart phones? Globally, consumers show their preference by using Google search 5.9 million times a minute. Half of all new owners of Windows-based smart phones shifted away from Microsoft’s Bing to Google within three days. In fact, the most popular search on Bing worldwide is “Google.”
Apple executive Eddy Cue said bluntly in 2023 that Bing “wasn’t a valid alternative” to Google. Like Xerox and FedEx, Google, the noun, has become google, the verb.
Phone users can easily switch search engines. But Google pays for the prime location anyway for exactly the same reason other dominant businesses pay for prime placement or advertising: to reach the marginal buyer. Profits are maximized at the point where the marginal cost equals marginal revenue. Companies spend on advertising and promotion, as part of their total cost, to secure the last buyer, up to the point that the sale generates a net profit. Such promotion payments have been approved by courts and endorsed by prior Justice Departments. In addition, seeking to maximize profits fulfills the fiduciary duty mandated under federal and state laws. Google has a duty to the millions of us who own its stock directly or in investment funds to try to maximize the long-term return on our investment.
Google’s payment to Apple differs from standard practice only in its size—$20 billion. But Google’s advertising and marketing budget, including the suspect payment to Apple, was $28.7 billion in 2023. That’s only 9.3% of its $307 billion in revenue. In comparison, Coca-Cola spent $5 billion on advertising out of revenue of $45.8 billion, or 10.9%. With $82 billion of revenue, Procter & Gamble spent $8 billion on advertising, or 9.7%. Amazon’s global marketing and promotion spending amounted to $44.4 billion in 2023, which was 6.9% of its $638 billion of revenue. Did Coca-Cola and Procter & Gamble engage in an antitrust violation by spending a higher percentage of their revenue on advertising and promotion than Google? No.
Google’s crime, according to the progressives of the Biden administration, was building the world’s best search engine. They wanted Google cut down to size because in their view only government should be big. The logic of the Trump administration for initiating the case and pursuing it is harder to understand. Even if the placement fee to the iPhone maker represented monopolistic behavior, destructive remedies—such as banning Google from AI, forcing it to sell its search engine, and crippling one of America’s premier tech companies—don’t fit the alleged offense. If our 90-year experience with progressive regulation proves anything it’s that abandoning the consumer welfare standard in antitrust enforcement gives government a license to pick winners and losers.
In February, Vice President JD Vance lectured Europe about excessive regulation, compliance costs and antitrust actions against U.S. tech companies. Maybe Mr. Vance should repeat the lecture to his own Justice Department and Federal Trade Commission.
Mr. Gramm, a former chairman of the Senate Banking Committee, is a nonresident senior fellow at the American Enterprise Institute.