Monopolization by Exploiting People’s Inertia? On the DOJ’s 2020 Complaint Against Google and Revenue Sharing Agreements as Non-Compete Arrangements

37 Pages Posted: 11 Sep 2023

See all articles by Omar Vásquez Duque

Omar Vásquez Duque

Stanford University; Rock Center for Corporate Governance; Stanford University

Date Written: August 22, 2023

Abstract

In October 2020, the Department of Justice sued Google for paying Apple and several other search engine distributors to set Google as its users’ default. The complaint alleges that Google’s agreements constitute de facto exclusive dealing arrangements because people only rarely change defaults. Although the complaint correctly asserts that this arrangement violates antitrust law, it misapprehends the mechanism of the anticompetitive harm.

The Google-Apple agreement is more accurately modeled as an arrangement that deters actual competitors from reaching a significant distribution channel and discourages a key potential competitor from entering search. The math is simple: if a potential competitor is paid for a preferred slot but then decides to compete with Google in the search market, then the potential competitor will have to incur all the costs associated with building a competing product, plus suffer the punitive effect of losing Google’s default provider payments. This last part is neglected in the DOJ’s complaint, which also overlooks that a monopolist has incentives to bid higher than any potential competitor for a vital distribution channel (because monopoly profits are higher than duopoly profits). Not every provider is its distributor’s potential competitor. This work offers guidelines to distinguish between sound and speculative potential competition claims, suggesting an actual potential competitor has (i) the objective capability and (ii) strong incentives to enter the relevant market. Apple is Google’s potential competitor.

We all pay the cost of a monopolistic ads market with higher prices. Yet given the current state of competition in the search market (in contrast with the competition that might exist in the absence of disincentives caused by these default agreements), the evidence is that most Apple users prefer Google. The default agreements, therefore, direct most consumers to the provider they prefer. Nevertheless, there are less restrictive alternatives to reach said efficiency. While forced choice strategies, such as choice screens, have shown to be ineffective in “leveling the field” among competitors, they can effectively ensure that Google does not hinder potential competition by paying a key potential competitor not to enter the market.

Keywords: revenue-sharing agreements, non-competes, digital markets, monopolization

JEL Classification: K21

Suggested Citation

Vásquez Duque, Omar, Monopolization by Exploiting People’s Inertia? On the DOJ’s 2020 Complaint Against Google and Revenue Sharing Agreements as Non-Compete Arrangements (August 22, 2023). Available at SSRN: https://ssrn.com/abstract=4548931 or http://dx.doi.org/10.2139/ssrn.4548931

Omar Vásquez Duque (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Rock Center for Corporate Governance ( email )

CA
United States

Stanford University ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

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