On Wednesday, the Senate Judiciary Committee turns its antitrust sights toward Google. Several topics will be on the agenda, but the one at the top will be neutrality: Does Google impermissibly favor some links over others in its search results, benefiting itself and harming competitors? While the question may seem harmless enough, the premise — that regulators should enforce neutrality on the Internet — is actually quite pernicious.
In fact, it seems that the Holy Grail for netizens is blanket neutrality across the Internet. From regulations that would prevent an Internet access provider such as AT&T from charging a website for priority delivery (“net neutrality”), to regulations that would prevent a search engine such as Google from delivering search results intended to benefit affiliated content (“search neutrality”), the guiding principle of this crowd is to make the Internet as neutral as Switzerland.
For those who missed the net neutrality debate, a quick review is in order: In December of last year, the FCC imposed net neutrality in its purest form. Unless the agency’s decision is overturned by a court, there will be no market for priority delivery on the Internet in the United States. This ban applies not just to AT&T or Google, but also to the next Steve Jobs, in his parents’ garage, developing a killer, real-time application that could benefit from priority delivery. According to net neutrality proponents, if the smallest website in America couldn’t afford the surcharge for priority delivery, then no one should be allowed to buy it.
On the heels of their last victory, the netizens are back for search neutrality, with guns aimed at Google. (The savvy reader will appreciate the irony, as Google was an original supporter of net neutrality. And the mature reader will recognize that one bone-headed regulation does not warrant another.) Although the FCC took the lead on net neutrality, the European Commission has grabbed the reins. Editorials in The Wall Street Journal, The New York Times and The Washington Post are calling for similar regulations here. Not to be left out, the Senate is holding a hearing on Google in late September, and the FTC has its own full-blown investigation of Google underway.
Proponents of search neutrality believe that Google could use it market power in the supply of search to gain an unfair advantage in other areas, ranging from maps to video to content-specific search to online shopping. Because most of Google’s current applications are free, however, it is not clear how Google profits by steering a search user from a rival to its own map, calendar, video or mail service. More important, by integrating search results in the form of maps into its traditional offerings, consumers are arguably made better off.
In a new Lewis & Clark Law School Legal Studies Research Paper, Professors Geoffrey Manne and Joshua Wright thoroughly debunk the logic of the search neutrality proponents. They correctly ask, What is the harm to any disfavored rival (let alone to consumers) if the link to Google’s application appears two slots above the link to the rival’s application but on the same results page? Compare this discrimination to the kind suffered by independent sports networks, which are often relegated by vertically integrated cable operators to a sports tier for which there are hardly any subscribers. Certainly such weak favoritism or ability to control access by a search engine cannot amount to foreclosure of the kind protected by the antitrust laws.
Perhaps in recognition of this vulnerably, and following in the same footsteps as their net neutrality comrades, proponents of search neutrality seek to impose new regulations free of any consumer-welfare considerations. Neutering a search engine’s alleged bias is a mess, however, and a review of the proposed remedies reveals that any solution to this purported problem might be worse than living with mild favoritism by search engines. By limiting discrimination, search neutrality runs the risk of limiting the relevance of searches and of reducing the incentive of search engines to differentiate themselves.
The leading candidates for achieving search neutrality include (a) providing a right to include an asterisk alongside the search result to direct users to a complainant’s explanation of the result (I am not making this stuff up); (b) the creation of a “Federal Search Commission” to regulate search engines (wait, it gets worse); (c) requiring a search engine to maintain a certain percentage of results on a given page for randomly ranked results as opposed to the engine’s algorithm (defeating the purpose of search in the first place); and (d) requiring search engines to disclose all manual adjustments of organic results to a special master. While an economist might scoff at these proposals, some policymakers take them seriously.
When it comes to fashioning remedies to achieve search neutrality, as Manne and Wright explain, the issue is whether some sort of ex ante blanket prohibition is appropriate instead of an ex post, fact-intensive evaluation on a case-by-case basis. Sadly, the FCC ignored this precise argument in the net neutrality debate, preferring to implement what amounts to a “per se” standard. Proponents of search neutrality understand that a website’s prevailing in a particular case, in which discrimination on the basis of affiliation and competitive harm must be proven, would be likewise nearly impossible.
If only the regulators understood this dilemma, we could banish the word “neutrality” from the regulatory lexicon.
Hal J. Singer is managing director and principal of Navigant Economics. His areas of economic expertise are antitrust, finance and regulation.