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Demystifying the google fine

, July 17, 2017, 0 Comments

Yes, a hefty fine has been meted out to Google by the European Commission (EC) and no, it is not being fined for showing the best results in response to a search! The much talked about fine relates to Google’s violation of competition laws in the European Union by leveraging its favourable position with respect to one of its services to give an undue edge to another service of its own.

Google has been fined €2.42 billion for abusing its dominant position in the market for search engine service by giving an illegal advantage of its own comparison shopping service, Google Shopping.

The fine has been imposed due to the violation of the competition laws of the EC – laws that seek to ensure that companies compete fairly with each other which promotes efficiency and provides consumers with a wider choice of better quality goods and services at lower prices.

Two separate markets: search engine and comparison shopping

Among the wide range of services provided by Google, two are of consideration in this case – one is its general search engine service (Google) and the other is its comparison shopping service (Google Shopping) –and the two are considered two separate markets in terms of competition law. While the general search engine may be used to find information on anything under the sun, comparison shopping services are more specialized. They are vertical search engines focusing on a specific segment of online content, for example, a particular product, and are used by shoppers to compare and filter products in terms of features, prices and reviews.

Google is dominant in the market for general internet search in the EC

A dominant company is one which has a substantially larger share of a particular market and has a considerably larger market share than its next largest competitor. In the market for general internet search, Google was found to have consistently high market shares since 2008 throughout the European Economic Area (EEA) which consists of 31 member countries. While being a dominant company itself is not illegal under EC competition laws, abuse of such dominant position to the detriment of consumers and other players in the market is a violation.

Why has Google been fined?

Companies that are dominant in a market may be able to use their powerful position to stifle competition on merit. They may do so either in the market in which they are dominant or use their dominance in one market to curb competition in another market in which they are not dominant.

In this case, Google has taken advantage of its dominant position in the market for general internet search and has given a significant amount of undue advantage to its own product in another market where it is not dominant, i.e. in comparison shopping. Starting in January 2008, using specific criteria in its generic search algorithms, search results of competing comparison shopping websites were demoted while those of Google Shopping was given prominence. This practice was introduced by Google in all 13 EEA countries where it had introduced its comparison shopping service. Consequent to Google’s illegal practices, traffic to Google’s comparison shopping website increased manifold – for example, it went up by 45% in the UK –while traffic to its competitors declined significantly – for example, by up to 85% for certain competitors in the UK. As competition based on merit was repressed in the comparison shopping market, European consumers were deprived of genuine choice and innovation.

What does this fine imply?

The record amount of fine imposed by the EC takes into account the gravity and sustained nature of the infringement. The decision requires Google to cease and desist from such illegal conduct within 90 days, failing which Google faces a penalty payment of up to 5% of the average daily worldwide turnover of Alphabet, Google’s parent company. Further, Google is also likely to face damage claims brought by a person or business affected by its anti-competitive behaviour. While a fine, even as big as €2.42 billion may be just a minor fraction of Google’s overall revenues, the changes required in its business strategies is what will be a concern for Google.

The opinions expressed in this article are the author’s own and do not reflect the view of MarketExpress – India’s first Global  Analysis & Insights Sharing Platform or the organization(s) that the author represents in his personal capacity.