THE European Union charged Google yesterday with abusing its overwhelming dominance in internet searches and opened a probe into its Android mobile system, massively raising the stakes in a five-year anti-monopoly battle.And what government can afford to ignore the opportunity? Naturally, we at HSIB are not surprised by this;
The move could lead to billions of pounds in fines for Google if the case demonstrates that the way it does business in the EU is illegal.
The bloc can impose fines of 10 per cent of annual revenue — amounting to over £4 billion — and force the firm to overhaul its system of recommending websites in Europe.
Now, more than a decade after the settlement in the Microsoft [anti-trust] case, arguments based on network effects are again being put forward as a basis for antitrust action or other industrial policy. Google has been a prominent target.... A paper appearing recently in this journal... “Search Engine Competition with Network Externalities,” observes that search providers use information about past searches to improve subsequent ones, and asserts that the practice creates a network externality.... From that assertion, the authors derive theoretical results and advance this policy proposal: “All search engines should be required to share their (anonymized) data on clicking behavior of users following previous search queries.”...we note that the paper follows the pattern of much of the lock-in literature: A network effect is posited and argued to give an incumbent product an advantage that is sufficient to lock it in, even where it is inferior to an available alternative.The above being from (though the bold is ours) The Troubled Path of the Lock-in Movement of Stan Liebowitz and Steve Margolis. As we noted at the time, the irony is rich in that Google's chief economist is Hal Varian, who, in the past (Thanksgiving, 2002) contributed more than his share to the intellectual confusion over this supposed market failure.
In Troubled Path, Liebowitz and Margolis relate the sad (really, scholarly malpractice) history matters that have followed in the wake of the work of then Stanford economists Brian Arthur and Paul David these last two and a half decades. A story of denial, double-talk, and duplicity in service of attempting to rescue Arthur's and David's story from the 1980s (a story so good it had to be true) of market failure. Popularly dubbed The Economics of QWERTY.
Which we did back in 2013, as interested readers can see for themselves by clicking here.
The details of that intellectual scandal will have to wait for another day. Instead we're now going to show something of Hal Varian's small role in promoting a false history that threatens to rebound to his new employer's (and his) detriment.