Daniel Lacalle

The EU Google Fine Is Not About Competition, But Against US Tech Giants

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I read with surprise the report that the EU has provided to justify the largest fine ever, $2.7 billion, for alleged “unfair use of its search engine” and “abuse of dominant position”.

The fine is the highest ever and more than double the amount of the previous largest one. No EU tech multinational, even ones with a dominant position, has ever been fined more than a couple of hundred million. So, why Google? and does it have any merit?

Why? Because it is a US company that operates outside of the interventionist and bureaucratic empire that the EU has created. One that subsidizes the inefficient companies close to the government by taxing the high productivity sectors.

Does it have any merit? None whatsoever. The EU is showing a worrying lack of understanding of online sales and search engines and twists its arguments to make a dominant position and an abuse that simply do not exist.

Let us start from that unfair view of the abuse of dominant position. How does the EU arrive at such aggressive figures? By ignoring real competitors.

This is the first but crucial and puzzling part of this misguided action. The EU does not consider Amazon, eBay, or the more than 300 price comparison sites that have surfaced since 2005 as “competitors”.

The EU assumes that Google abuses its market position because it is the most widely used search engine. But it does not understand that the use of Google versus other alternatives, Bing, Yahoo etc… is a completely personal choice, not an imposition. No one opens their brand new laptop and finds themselves forced to use Google or Google shopping…. But to say that Amazon and eBay are not competitors of Google Shopping is simply a way of manipulating facts to arrive at a pre-designed conclusion: The evil of market abuse.

Anyone that shops online knows that:

. Stating that Amazon, eBay or the more than 300 price comparison websites created since 2005 are not “competitition” is a mistake.

. The EU fails to understand how consumers search and shop. If there was a perverse incentive to manipulate search, consumers would go elsewhere immediately. Anyone that shops online uses more than one option to find what they want at the best price.

. Google Shopping does not show products using Google’s preference nor demands exclusivity. It benefits SMEs and consumers.

. Using shopping ads and prominent announcements helps consumers find what they want, but if the consumer does not ultimately find what was required, that person will look elsewhere. The EU makes completely wrong assumptions about how consumers use online search engines and price comparison sites.

. Even if Google Shopping decided to manipulate the search, competitors would destroy them in no time with a better search platform.

. The EU is implying that there is a perverse incentive for Google to promote certain products using its market position when its leadership has been achieved precisely by doing the opposite, by providing the best and most varied information to consumers. Doing what the EU assumes would be insane, as it would go against Google’s business model and the reason why consumers decide to use its tools.

. The EU ignores that in online shopping and price comparison, the consumer has all the power. If the consumer felt misinformed or viewed the experience as unsatisfactory, the competition would immediately take the opportunity and absorb that market share.

. The fine shows the EU’s interventionist agenda, not any defense of competition. Everyone knows consumers have the power and how they migrate to other options.

Google explains it perfectly in its answer.

“Showing ads that include pictures, ratings, and prices benefits us, our advertisers, and most of all, our users. And we show them only when your feedback tells us they are relevant”

This is what the EU fails to understand. Leadership and market share in online shopping and the new economy are not maintained by abuse, but by the process of empowering customers.

Then is the size of the fine. It is no surprise. The fine has nothing to do with competition as previous fines to other giant companies have been fractions of what we have read today. So where does this multi-billion figure come from? It is a subterfuge for trying to impose more taxes on Google, once the EU has found it impossible to claim what they wanted to collect from the company because it was illegal and unfair.

The EU is so entrenched in a view of competition that comes from the old economy, that it forgets that disruptive technology companies lead because they can immediately replace those inefficiencies of the market that oligopolies and monopolies create. By the way, they should know that no monopoly can exist without the explicit approval of the government.

Meanwhile, the EU continues to defend European national champions and state oligopolies and disguising thinly veiled taxation decisions with calls for competition.

There is a small problem. The EU will lose in its misguided battle against US tech giants. But there is something worse. It is losing the technology race.

What the EU should do is ask itself why there has been no Google, Amazon, Netflix or Facebook created in Europe. The answer is sad and simple. The EU itself would have prevented it with unfair regulation and fines in order to maintain its “national champion” dinosaur conglomerates.

Daniel Lacalle is Chief Economist at Tressis SV, has a PhD in Economics and is author of “Escape from the Central Bank Trap”, “Life In The Financial Markets” and “The Energy World Is Flat” (Wiley)

Images courtesy @IEB

4 Responses to The EU Google Fine Is Not About Competition, But Against US Tech Giants

  1. Michel 28 June, 2017 at 11:50 am

    Maybe do your researches before making false statements. The largest fine was given by the US to a European Multinational (nearly twice the fine you are criticising).

    https://www.theguardian.com/business/2017/jan/10/volkswagen-confirms-43-billion-us-payment-over-diesel-emissions

    Thanks for trying.

    Reply
  2. Oscar 31 July, 2017 at 11:26 pm

    Hi Daniel

    Us tech companies have ellaborated fiscal structures to avoid paying taxes he ce they will get fined….wrongdoing on both sides but apparently this is the law of the land. The reason behind the dominance of Sillicon Valley tech companies is far more complex than you suggest as the fact that there is not any other of such companies outside California supports (is the rest of the US just like the EU?).

    Cheers

    Reply
    • Daniel Lacalle 3 August, 2017 at 7:49 pm

      That is not correct. There are thousands of them outside of California, in the UK, in Ireland, in Estonia…

      Reply

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