On April 19, the head of the European Commission, Jean-Claude Juncker, admitted that the EU was “wrong to over-regulate and interfere too much.” Ironically, the very next day, the Commission’s office of competition issued a sweeping antitrust cased against Google. The complaint, filed by EU competition chief Margrethe Vestager, accused the search giant, among other items, of
requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as default search service on their devices, as a condition to license certain Google proprietary apps
The commission justified its case by saying that
this conduct ultimately harms consumers because they are not given as wide a choice as possible and because it stifles innovation.
I’m not an antitrust lawyer, so I’m not going to judge whether Vestager was right to bring this case under European law, or what her chances of winning are. But as an economist, this case is totally perverse. The likely impact if the EU wins its case: Higher prices for European consumers and small businesses, and slower innovation in areas such as the Internet of Things, where Europe has a potential competitive advantage.
Consider the current situation. Google spends enormous sums of money developing and upgrading its mobile operating system and apps, which are acknowledged as top quality. All of this intangible capital embodied in Android is effectively available, for free, to handset manufacturers, European consumers, app developers and small businesses, to use as they would.
From an economic perspective, it’s hard to beat free. In other words, the European economy, consumers, and workers get the full benefit of Google’s R&D spending on Android, without having to utilize scarce resources. This has the benefit of spurring competition, app creation and smartphone use within Europe, and allowing the EU to keep up with the United States. Indeed, recent PPI research shows that Europe has 1.64 million App Economy jobs as of January 2016, almost as many as the United States. (PPI link)
Especially helped by Android are low-income consumers across the EU, who get a wide choice of inexpensive phones, if they want, with access to the full variety of Android apps. Indeed, the very market dominance that the complaint cites is the result of the success of Android in opening up the lower end of the smartphone market. Fragmentation of the market will only have the effect of increasing prices in Europe, as manufacturers lose economies of scale.
Indeed, winning the case against Google is likely to divert Europe’s R&D spending, already lagging the US, away from innovation in the manufacturing/Internet of Things sector, where Europe can potentially take advantage of its strong manufacturing base to set new global standards. In that sense, this antitrust suit is at best a distraction, at worst a hindrance, to European long-term growth and job creation.
