Prof G Markets: Breaking Down the Google Monopoly Ruling — ft. Rebecca Allensworth

25:53We're back with ProfG Markets. Google is a monopoly. That is the ruling from Judge Amit Mehta on the biggest US antitrust trial in decades. Judge Mehta found Google has illegally exploited its dominance in the search business to crush competition and suppress innovation. Its roughly 90 % share of the market was evidence of that dominance. Here to help us break down the ruling and what it means for Google and the rest of big tech is Professor Rebecca Allensworth, Associate Dean for Research at Vanderbilt University Law School. Professor Allensworth, thank you very much for joining us. Thanks for having me.

26:29So let's just start with the background here. This is a ruling on a lawsuit brought against Google by the Department of Justice. What exactly were the DOJ's accusations in this lawsuit? Well, the DOJ claims that Google monopolized the search market and the advertising market. And monopolization in the U.S. requires two showings. One, that the company is indeed a monopolist. In other words, that it has monopoly power. That, as you said, was found here by virtue of Google's size in the search market and in a relevant advertising market. And then that's not enough, though. It's not enough to be a monopolist to violate the law.

27:09You have to have maintained or obtained that monopoly using some sort of exclusionary tactics. In this case, that was exclusive dealing contracts that Google has with Apple and Mozilla and in the Android ecosystem that essentially make it the default search engine on almost all mobile devices, and that that kind of prevented any avenues for competitors to use to get to the kind of scale that they would need to build a better search engine that could actually compete with Google. So the idea is that Google kind of foreclosed its rivals from entry into the search market. We've been talking about antitrust for years now, Scott especially.

27:57the way I would describe the antitrust conversation is that it is just that, just a conversation. It's kind of all talk, very little action. Most big tech companies have not faced much substantive enforcement. Maybe that's about to change, but what's different about this lawsuit today versus all the other lawsuits we've covered in the past? Well, I guess I wouldn't argue that they're that different. So I think if you're talking about antitrust being all talk and no action, you're kind of having to go back to a time before 2020. So this suit was filed in 2020. It was at the end of the Trump administration.

28:35But largely this push for antitrust enforcement, especially against big tech companies, is associated with the Biden administration. And there's been a lot of action, so I wouldn't call it talk. If what you mean is actual decisions in these cases, it's true that this is the first of all the major monopolization cases to come to trial. These cases take a very long time to bring, and they always have. In fact, one of the most famous monopolization cases from more than a century ago, Standard Oil, also took five years. So part of the answer to your question is what's different about this one is that it's just the first to be decided.

29:11In fact, something very similar could happen in some of these pending monopolization cases. What do you think the potential remedies are? What happens now to Google to try and rectify the monopoly maintenance? Well, that is the big question, and nobody really knows. This judge has been very careful not to tip his hand about remedies. Some people have been very excited about the possibility of a breakup. I think that that's really, really unlikely in this case, not only because breakups are sort of disfavored remedies and seen as a bit extreme. And I'll note that even though the the decision that came down on Monday is a huge win for the government and a big loss for Google, it's also very careful.

29:51It's really not out there. It's very much couched in traditional antitrust terms. And so I would be very surprised to see this judge go for a remedy that would be seen as out there. The other reason why I think a breakup is unlikely is because there's not a natural or simple way in which you would break up this company to address the harms from this lawsuit. A different example would be the Facebook lawsuit. So there's a pending monopolization claim against Meta because Facebook acquired Instagram in 2012 and WhatsApp a couple years later. Well, it would seem like if that's monopolization, a natural remedy would be to force divestiture of these kind of independent properties.

30:32We don't really have that in the Google case. So anyway, that's a long way of saying I think that breakup is off the table. More likely, I think they'll enjoin the kinds of exclusive dealing contracts that were found to be unlawful here. That might result in a choice screen for us when it comes to using search. Choice screen meaning when you open up your phone, you're given an option, multiple different options of what browser you want to use, right? The devil's in the design details, right? Is this a choice screen that happens when you open up your phone, as you say? What is it a choice between?

31:05Is it a choice once and then it's the default forever? So these are all questions, I think, that will be raised in this next phase of litigation. But yes, put simply, I'm calling a choice screen some sort of moment where the user is able to decide, this is the search engine that I want to use, be it Google or Bing or DuckDuckGo or some other product. I mean, I'm just thinking from a consumer preference standpoint, I wouldn't be surprised if they maintain that 93 % share. It has an outstanding product. People are just sort of inclined to click on the Google logo. And then, but it diminishes the power of Apple to extract exorbitant$20 billion a year by being the default.

31:48Could this end up being sort of a net neutral for Alphabet and hurting Apple a lot? So this is going to say, let's put it this way. This is going to save Google a lot of money because they're going to get potentially for free what they were having to pay a lot for, and that could hurt Apple. But I think viewing it in that sort of zero-sum way is maybe incorrect because I don't think revenue sharing is going to go away. So that$20 billion payment represents the revenue sharing agreement. I don't think that it's necessarily true that now that there won't be a default, some sort of exclusive default, that there won't be some sort of revenue sharing.

32:32For example, at trial, it was shown that Apple tried to negotiate for a less lucrative revenue sharing agreement if Google agreed it would not be exclusive. So in other words, if it opened up the possibility for Apple to also use, to push its own search product or maybe Bing or something, Google refused. Now maybe Google can't refuse that, and yet so that revenue shrink will go down. So I'm not sure it's a total like$20 billion change of hands. There's also other dynamics in here that we need to put in play. So I totally agree that if I were now presently given a choice between DuckDuckGo, and in fact, I am, in a way, given a choice between DuckDuckGo, Bing, and Google, I would pick Google.

33:19However, it would seem that that 94 % share is vulnerable in a world in which there's not this exclusive default. Otherwise, what was Google paying for? And so over time, I think it's reasonable to assume that if you open up these barriers, something will change within this market. It kind of unfreezes the market. And does it on day two, you know, really alter Google's market share? Maybe not right away. Does it make that market share more vulnerable? I think so. One thing I found really interesting is that the Google's stock wasn't actually affected too heavily by this decision. It did fall, but so did the rest of the market.

34:03And this drop wasn't that much more pronounced than the rest of the stock market, which leads me to believe that Wall Street isn't worried about this from a shareholder perspective. Perhaps they think Google won't be punished or that if it is punished, the punishment is going to be extremely light. I'm wondering if you have any thoughts on that. And is Wall Street correct, if that's what they're assuming here? Okay, well, you have a lot more expertise about whether movement of the markets actually reflects real information about whether the future will happen. And I tend to be a little skeptical about that.

34:38But I think the fact that the markets didn't move in a way that reflected panic about Google makes perfect sense to me for a few reasons. One, reasonable antitrust law enforcement is not going to destroy these companies. It is going to shift their tactics. It's going to make them compete harder. I don't see that meaning that Google's not a good bet, right? I mean, I don't think that that's a reason to sell your Google stock, that the only reason why this company is worth investing in is because it has a lockdown, illegal monopoly. And when that's threatened, the company is worthless. That's just sort of a straw man argument, which is another reason why I think when the tech companies say, why are you trying to destroy us, America?

35:21We make your most valuable products. That's also a little bit of a straw man argument. The other thing is this is going to take a very long time. This is going to take potentially years. I would say potentially up to a year before we know what the remedy is, whether it's strong or weak or whatever, and probably another year before it's implemented. And so this is where I defer to the experts on how markets move. But I think it would be strange to sell off in a scenario where you're worried about losing value two years from now. Yeah, that makes a lot of sense. And also Google will appeal, right?

35:52Yeah, that's why it's going to take. So I think that we may have a decision on the question of remedy within a year, but then the whole thing will be appealed. What do you think their argument would be if we were to try to steel man the other side of this? How do you think Google will argue that those$20 billion payments to Apple were kosher and that they are, in fact, not a monopoly? Well, I mean, they made these arguments at trial. The argument that they're not a monopoly is pretty weak. I think that they gave the government more of a run for its money on the question of what did these payments really represent?

36:27And they presented them as profit sharing. You know, we have an extremely valuable product. People love it. People use it a lot. And we have so many eyeballs on our stuff day in and day out that we make a lot of money off of advertising revenue. It's only natural that we would want to share that revenue through our distribution channels, you know, with our distribution partners like Apple. That was sort of the thrust of their argument. And the place where it fell apart was on the idea that, okay, fine, share it. Why does it have to be exclusive? What is the value, not to Google, which is clear, the value, but what is the value to consumers that this be exclusive?

37:10We'll be right back.

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39:32We're back with Prof G Markets. What do you think this will do for antitrust moving forward? I mean, you talked about the fact that there are several other antitrust cases in litigation at the moment. I also like your point that I'm saying nothing's happened, but the reality is these things take a while and I've just been impatient. But it is annoying how long it takes. But do you think this decision will have any effect on those cases? Does the fact that Judge Mehta ruled in favor of the Department of Justice do anything to affect what's going on with Meta and Microsoft and all these other big tech companies?

40:09Absolutely. In ways that are big and small and short-term and long-term. So it's hard to know where to start. But the first is just that this is an indication of the times that we're in now. This is a data point of how a sort of careful, legalistic, pretty much down-the-middle federal judge thinks about this kind of monopolization case of which there are, you know, four other ones pending. So it's just kind of like a test case. And I think for that reason, we can think about what it means about the other cases. Not that they're all as strong as this one. They have their own problems, but it is a data point that I think is very relevant.

40:47And the other is in specific holdings that he made, that these are not going to be presidential. You don't have to follow them if you're a judge in another case. But he said a lot about how you define a market in tech, about the power of defaults, about the importance of scale in tech markets that are in various ways relevant to these other cases. And so I think that it could be hugely influential in those ways, too. Quick question, Professor. Imagine there's a presidential candidate and a VP candidate and as VP are basically sort of bought and owned by the tech industry. Some tech bros have said, we'll get you a billion dollars, but we want you to take a very much of free markets, laissez-faire, hands-off approach to tech.

41:30Is this a hypothetical? This is a total hypothetical. So imagine a different world where you had an insurrectionist and a rapist running for president. Okay. So they get elected. Could they effectively, if they decided, could they undo this decision or just make it essentially neuter the whole thing and stop it? Yes, technically. So they could, from a legal perspective, they could not appeal. For example, they could abandon their appeal. They could change what's being sought on remedy. So I think the remedy phase is going to last probably through the election. But I will remind you that this hypothetical presidential candidate was the president when this case was brought.

42:18So he's going to so it's actually not a Biden administration case. So it would be optically odd for this particular case to switch horses in that way. You mean you mean hypocritical and inconsistent? So maybe the maybe the answer is that definitely will be abandoned. I think the conventional wisdom is is that it won't be. And, you know, for that, I defer to some regulators and heads, former heads of these agencies that have said that this will kind of survive into the—I mean, part of it is like—so now we're talking politics and not antitrust, and I'll do my best here. But I could just—I could see somebody spinning this to their own advantage as their own win in a way that actually was politically expedient, even if it is against a big tech company.

43:08When I saw this, I saw that the biggest or the most important feature of this decision wasn't what happens to Alphabet or even to its partners. It's just that it feels like antitrust has its mojo back. and that this is sort of, there was a general, almost a bereft resignation. That's redundant, that we had been overrun by these guys or government just couldn't compete. Government couldn't, you know, they kind of show up and almost dare them to try and do this shit. That they had more lawyers, public sentiment behind them. Consumers love their products. You know, try to take us on. And the DOJ and the FTC have and they've taken on one of the biggest and most well-resourced and most over-lawyered and over-lobbyist, and they've won.

43:59And this, to me, represents a change in the tide where the government and the kind of antitrust folks have their mojo back. It might inspire some of these companies to prophylactically... I mean, I can see Alphabet spinning YouTube. I can see Amazon spinning AWS going, you know, we're going to become more valuable, and we want to get out in front of this because clearly these guys are no longer afraid of us and judges are no longer afraid to rule against us. It feels like momentum has shifted dramatically here. Your thoughts? I mean, I could not have put it better than that. That is what I think is so important about this case.

44:34You know, what it does for Google and the specific search market in question, I think, is a little bit unclear at this point. But what it definitely shows, well, first of all, the holding that Google has monopoly power also opens the door to everything else it's going to now do with that power? So let's say that they're negotiating contracts to get content for AI. Well, now they're negotiating contracts for AI content to train their models as a monopolist. In America, you're halfway to a monopolization verdict if you have that first half. So now they're going to have to be thinking about how exclusive are those contracts going to be.

45:13So even for Google, I think before we even get to remedy, it's meaningful. But I agree that the The biggest important thing here is that, as you said, antitrust has its mojo back. And I don't think a change in administration can really change that. I take a long view. There was a big shift in the way that we did antitrust in the 70s. I think we're at the beginning of that same kind of shift in the other direction now. Professor, where do you stand on consumer harm? I feel like that's been one of the big arguments from big tech that, yes, they have these sort of monopolistic-esque practices. but ultimately they're delivering great products.

45:51Everyone still loves buying from Amazon because stuff is cheap. And, you know, people, as you said, would choose, if they were given the option, would probably choose Google over Bing and DuckDuckGo. Where do you stand on that side of the argument that consumers aren't being harmed, so what's the problem? I think consumers are being harmed. And I think that's what the opinion says. The question is, how innovative are these companies? How much energy is Google putting into defending its monopoly that it could be putting into competing? What other smaller search engines, like Neva as an example that came up during the trial, could have been bringing something new to the table that aren't?

46:36I think the most striking thing about this opinion is that it actually uses this idea of innovation, which the big tech companies have been using as kind of trying to beat back antitrust law, saying antitrust enforcement is going to stifle innovation. And it says, no, it's you that stifle innovation. You aren't that innovative. Well, so, I mean, the idea that antitrust law can be used to improve innovation, I think is really squarely in this case. I'd love to get your view on the rest of these antitrust cases. You know, there are cases out against Meta, Microsoft, Apple. Which company, in your view, is the worst when it comes to antitrust?

47:18Which is the most monopolistic, which has violated the most amount of laws? And in your view, which one needs is most in need of some sort of enforcement or breakup? That's a hard question to answer because Because I'm inclined to say Amazon has the worst impact on markets and is the most problematic, but it is also, I think, the least likely to be found to be a monopolist. And that's because of some defects in the way that antitrust law has evolved over the last 40 years that need to be undone, and they can only be undone incrementally. So, in other words, I think that the pending suit against Amazon is the weakest, but it's the one maybe that I'm most rooting for.

48:05So, I can't predict that they're going to win. I think the strongest of the pending suits, I think the suit against Apple came out a lot stronger than I thought it was going to. Around the App Store and kind of eustress pricing around the App Store? No, it's more the green bubble, blue bubble is the way that people are kind of shorthanding it. It's the idea that they're degrading the quality of Android on the phone so that people choose the Apple ecosystem kind of artificially. And they're holding back interoperability in order to basically keep Android at bay. That's a decent complaint. The thing you said that I found fascinating with Amazon is probably the most in need of a breakup.

48:48I imagine because you believe it suppresses competition, but it's the least likely to be broken up on legal grounds, which connotes the need for the change in antitrust law. I'll cosplay an antitrust lawyer here. Don't we need sort of a return from the Bork kind of test around consumer pricing to more Brandeisian around what makes markets less or more competitive? Don't we need to move from the consumer test back to just the competitive test? So I actually believe in the consumer welfare standard, but I find that when I talk about it, often people who also believe in the consumer welfare standard describe it in a way that I don't recognize.

49:33They'll say things like, consumer welfare standard demands present short-term numerical harm to consumers to make for an antitrust violation. I don't believe in that. I think all these lawsuits describe long-term meaningful consumer harm. And to me, I think that you can get 95 % of what the Brandeisians want through a sort of common sense and reasonable understanding of what consumer welfare really is. So I don't, I'm kind of actually in my own work struggling with whether I say I believe in the consumer welfare standard because that phrase often means something that I can't endorse. On the other hand, I do feel like moving away from consumer protection, you lose a lot of like, well, what are we doing here exactly?

50:21What does competition mean? So I feel ambivalent about that question. Just as we wrap up here, one observation. Professor Ellensworth, you are outstanding. You are outstanding. Your ability to take these topics and make them seem somewhat interesting, which is nearly a miracle of oration and presence. You are in the right seat helping shape legal minds. We very much appreciate you coming on. And, again, really enjoyed this conversation. Well done. Thank you. That's really nice to hear. Thank you so much. 100%. Rebecca Hall-Allensworth studies antitrust and professional licensing. Her work on antitrust focuses on how to adapt competition policy to address competition problems posed by tech platforms.

51:04She teaches contracts and antitrust law at Vanderbilt University and is a six-time winner of the Hall Hartman Outstanding Professor Award for Excellence in Teaching. Clearly too qualified to be on this podcast. Thank you very much for joining us, Professor Allensworth. Thank you.

51:28Ed, what'd you think? Incredible. I loved all of her points. And by the way, she won the best teaching award. Every school, graduate school has this. And she's won that six times. I would imagine the faculty at the Law School of Vanderbilt have between 100 and 200 profs. For her to win in six years, that means she's out. That is literally like being MVP or, yeah, the MVP in a league six years in a row. That is so hard to accomplish. There was one guy who's done that at Stern, who we also have, Aswad DeMotoran. I've been nominated a couple times for that award, Ed. I haven't yet to win it. What do you think you're doing wrong?

52:06You know, let's be honest. The reason I haven't won it is just simple jealousy. It's just that I got to be honest, that's an award I coveted. I think I've been nominated once or twice. You want to hear, okay, this is my life. My department chair calls me and says, I've got great news. You won the Best Teaching Award. This is like 10 years ago. And he's like, we're so proud of you. This is such great news. I was so excited. I called a bunch of people and then he calls them back. He goes, oh, we fucked up. Glenn Oken won it. Sorry about that. And I'm like, I just called pretty much everyone I know and told them I just won best prof.

52:45It's like the Steve Harvey Miss Universe blunder. This is terrible. This happens all the time. It happened to— It happened at the Oscars, too. Yeah, and it happened to Paul Romer, who is an outstanding professor. Especially the dean of our university called him and told him he'd won the Nobel Prize and it ended up he hadn't. But the good news about Professor Romer is he did eventually win the Nobel Prize. I have not. I'm still waiting. But yeah, that was similar to when I got an email about the Webby Awards. I thought that we had won a Webby or that I had won a Webby. And it turns out that I had won an honorable mention for the Webby Award, did not win the actual Webby.

53:24The Webby's have adopted the same business model as Amazon. So if you write a book and you put it on Amazon, they slice it into so many categories. It'll be your number seven in professors with erectile dysfunction who have a shaved head who write books about the economy. Come to our dinner and spend$1 ,000 just to show up. Yeah, that's the Webby. Yeah, that's the Webby's is they just slice. They slice the cheese a million different ways to get people engaged. Anyways, you'll get there, Ed. Okay, let's take a look at the week ahead. We'll see the consumer price and producer price indices for July.

53:56We'll also see earnings from Home Depot, Walmart, and Alibaba. Scott, do you have a prediction for us? I would bet over the next couple of weeks, you're going to have a lot of very smart people at all of the big tech firms get in a room and say, OK, the jig is up. And these guys clearly have mojo now are going to allocate more resources, more lawyers. And Judge Mehta has given permission to other judges to say, no, you're guilty of monopoly abuse. And I think some of them might decide to prophylactically stave off the wolves at the door here and break themselves up. I think you're going to, in the next 24 months, see a prophylactic spin of an AWS or a YouTube because these guys are so smart.

54:41And also, I generally believe that it would increase shareholder value. So anyways, the prediction, you're going to see some spins that attempt to immunize them against antitrust.

54:56This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our executive producer is Catherine Dillon. Mia Silverio is our research lead. And Drew Burrows is our technical director. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us on Thursday for our conversation with Ramit Sethi, only on Prof G Markets.

55:26You help me In kind reunion As the world turns And the dark flies In love, love, love, love