Google and the limits of antitrust: The case against the case against Google

Harvard Journal of Law and Public Policy

Volumn 34, Issue 1, 2010, Pages 171-244

  Manne, Geoffrey A ^a   Wright, Joshua D ^b  

^a International Center for Law and Economics   (United States)

^b GEORGE MASON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 80052708417     PISSN: 01934872     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (230)

1. United States v. Microsoft Corp., 253 F.3d 34 (D. C. Cir. 2001) (en banc) (per curiam).
2. Complaint, In re Intel Corp., No. 9341, FTC (Dec. 16, 2009), http://www.ftc.gov/os/adjpro/d9341/091216intelcmpt.pdf, The case was eventually settled.
3. See In re Intel Corp., No. 9341, FTC (Oct. 29, 2010), http://www.ftc.gov/os/adjpro/d9341/101102inteldo.pdf.
4. The Assistant Attorney General for Antitrust, Christine Varney, has suggested that Google, in particular, is of concern to the government. Christine Varney, U. S. Asst. Att'y Gen for Antitrust, Remarks Before the American Antitrust Institute (Feb. 11, 2008), available at http://www.antitrustinstitute. org/files/20080619-pv-aai061908holemanbreakout-020320091323.mp3.
5. Jan Leibowitz, Chairman, Fed. Trade Comm'n & J. Thomas Rosch, Comm'r, Fed. Trade Comm'n, Statement Regarding In re Intel Corp. No. 9341 (Dec. 16, 2009), available at http://www.ftc.gov/os/adjpro/d9341/ 091216intelchairstatement.pdf.
6. Pac. Bell Tel. Co. v. Linkline Commc'ns, Inc., 129 S. Ct. 1109, 1113-14 (2009) ("Recognizing a price-squeeze claim where the defendant's retail price remains above cost would invite the precise harm we sought to avoid in Brooke Group: Firms might raise their retail prices or refrain from aggressive price competition to avoid potential antitrust liability" and finding it "most troubling [that] firms that seek to avoid price-squeeze liability will have no safe harbor for their pricing practices.").
7. Robert W. Crandall & Clifford Winston, Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence 17 J. ECON. PERSP. 3 (2003). In the Microsoft context
8. see also William H. Page, Mandatory Contracting Remedies in the American and European Microsoft Cases, 75 ANTITRUST L. J. 787 (2008);
9. William H. Page & Seldon J. Childers, Measuring Compliance with Compulsory Licensing Remedies in the American Microsoft Case, 76 ANTITRUST L. J. 239 (2009);
10. William H. Page & Seldon J. Childers, Software Development as an Antitrust Remedy: Lessons from the Enforcement of the Microsoft Communications Protocol Licensing Requirement, 14 MICH. TELECOMM. & TECH. L. REV. 77 (2008).
11. Daniel F. Spulber, Unlocking Technology: Antitrust and Innovation, 4 J. COMP. L. & ECON. 915 (2008).
12. See, e.g., Carl Shapiro, Exclusivity In Network Industries, 7 GEO. mason l. rev. 673, 674-75 (1999).
13. See, e.g., Richard A. Posner, Antitrust Law, at IX (2nd ed. 2001);
14. C. Frederick Beckner & Steven C. Salop, Decision Theory and Antitrust Rules, 67 Antitrust L. J. 41 (1999);
15. Frank H. Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1 (1984);
16. David S. Evans & A. Jorge Padilla, Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach, 72 U. CHI. L. REV. 73 (2005);
17. Luke Froeb et al., Vertical antitrust policy as a problem of inference, 23 INT'L J. INDUS. ORG. 639 (2005);
18. Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach, 69 ANTITRUST L. J. 469 (2001);
19. Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. COMPETITION L. & ECON. 153 (2010).
20. This conflation of activity level with success has come from a number of sources, including then-presidential candidate Barack Obama. See Barack Obama, Senator, Statement to the American Antitrust Institute (Nov. 5, 2009), available at http://www.antitrustinstitute.org/archives/files/aai- %20Presidential%20campaign%20-%20Obama%209-07-092720071759.pdf (promising to "reinvigorate antitrust enforcement" and asserting that the activity level of enforcement during the Bush administration caused negative consequences for consumers). Officials also have largely repudiated the well-accepted error-cost framework. The FTC Chairman and Commissioner declared that "there is no such thing as a false positive."
21. See Varney, supra note 3; see also J. Thomas Rosch, Comm'r, Fed. Trade Comm'n, Thoughts on the Withdrawal of the Section 2 Report, Remarks Before IBA/ABA Conference on Antitrust in a Global Economy (June 25, 2009).
22. Judge Richard A. Posner defined the "New Economy" to denote the rise of three industries: manufacture of computer software, Internet-based business, and communication services. Richard A. Posner, Antitrust in the New Economy 2 (Univ. of Chi. Law Sch., John M. Olin Law & Econ. Working Paper No. 106, 2000), available at http://www.law.uchicago.edu/files/files/106.Posner. pdf.
23. U. S. DEP'T OF JUSTICE, COMPETITION AND MONOPOLY: SINGLE-FIRM CONDUCT UNDER SECTION 2 OF THE SHERMAN ACT (2008), available at http://www.usdoj.gov/ atr/public/reports/236681.pdf. The report was withdrawn the following year.
24. See Press Release, U. S. Dep't of Justice, Justice Department Withdraws Report on Antitrust Monopoly Law (May 11, 2009), available at http://www.justice.gov/atr/public/press-releases/2009/245710.htm.
25. See, e.g., Stacey L. Dogan & Mark A. Lemley, Antitrust Law and Regulatory Gaming, 87 TEX. L. REV. 685, 700-03 (2009) (discussing the costs of false positives and false negatives).
26. There are two separate points here. The first is the inevitability of errors with decision by legal rule generally. See Easterbrook, supra note 10, at 14-15 (reiterating that "[o]ne cannot have the savings of decision by rule without accepting the costs of mistakes"). The second point is that the likelihood of antitrust error depends crucially on the development of economic science to produce techniques and methods by which we can successfully identify conduct that harms consumers. See Frank H. Easterbrook, Workable Antitrust Policy, 84 MICH. L. REV. 1696, 1712 (1986).
27. This point is most often attributed to then-Judge Breyer's well-known admonition that antitrust rules "must be administratively workable and therefore cannot always take account of every complex economic circumstance or qualification. " Town of Concord v. Bos. Edison Co., 915 F.2d 17, 22 (1st Cir. 1990). But the Chicago School of antitrust has traditionally shared with Breyer's Harvard School a preference for using economics to generate simple and administrable rules rather than overly sophisticated economic tests.
28. See William E. Kovacic, The Intellectual DNA of Modern U. S. Competition Law for Dominant Firm Conduct: The Chicago/Harvard Double Helix, 2007 COLUM. BUS. L. REV. 1, 32-35;
29. Joshua D. Wright, The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond, 3 COMPETITION POL'Y INT'L 25, 37 (2007).
30. Easterbrook, supra note 10, at 18.
31. Joshua D. Wright, Overshot the Mark? A Simple Explanation of the Chicago School's Influence on Antitrust, 5 COMPETITION POL'Y INT'L 179 (2009).
32. See James C. Cooper et al., Vertical Antitrust Policy as a Problem of Inference, 23 INT'L J. INDUS. ORG. 639 (2005);
33. see also Keith N. Hylton, The Law and Economics of Monopolization Standards, in ANTITRUST LAW AND ECONOMICS 82 (Keith N. Hylton ed., 2d ed. 2010).
34. Multiple academics review the existing theory and evidence on vertical restraints and single-firm conduct more generally and uniformly conclude that the practices at issue are generally procompetitive and that antitrust rules should "slant" towards requiring plaintiffs to demonstrate clear anticompetitive effect before condemning finding violations. See, e.g., Cooper et al., supra note 24; Francine Lafontaine & Margaret Slade, Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy, in HANDBOOK OF ANTITRUST ECONOMICS 391 (Paolo Buccirossi ed., 2008);
35. Daniel P. O'Brien, The Antitrust Treatment of Vertical Restraints: Beyond the Possibility of Theorems, in THE PROS AND CONS OF VERTICAL RESTRAINTS 40 (Swedish Competition Auth. ed., 2008), available at http://www.konkurrensverket. se/upload/Filer/Trycksaker/Rapporter/Pros&Cons/rap-pros-and-cons-vertical- restraints.pdf.
36. See generally Michael R. Baye & Joshua D. Wright, Is Antitrust Too Complicated for Generalist Judges? The Impact of Economic Complexity & Judicial Training on Appeals, J. L. & ECON. (forthcoming 2010) (finding a statistically significant tendency for economically trained judges to perform better in simple antitrust cases, but not those involving sophisticated economic evidence).
37. CARL KAYSEN & DONALD F. TURNER, ANTITRUST POLICY: AN ECONOMIC AND LEGAL ANALYSIS 110 (1959).
38. Phil C. Neal et al., Report of the White House Task Force on Antitrust Policy, 2 ANTITRUST L. & ECON. REV. 11, 14-15, 65-76 (1968-1969).
39. FTC v. Procter & Gamble Co., 386 U. S. 568 (1967);
40. United States v. Pabst Brewing Co., 384 U. S. 546 (1966);
41. United States v. Von's Grocery Co., 384 U. S. 270 (1966);
42. see also William E. Kovacic & Carl Shapiro, Antitrust Policy: A Century of Legal and Economic Thinking, 14 J. ECON. PERSP. 43, 51-52 (2000);
43. William E. Kovacic, The Influence of Economics on Antitrust Law, 30 J. ECON. INQUIRY 294, 295-96 (1992) (describing the features of the U. S. competition policy system that give economists a major role in shaping antitrust rules).
44. See generally ROBERT H. BORK, THE ANTITRUST PARADOX (1993);
45. 384 U. S. 270 (1966).
46. See Joshua Wright, Commissioner Rosch, Rhetoric, and the Relationship Between Economics and Antitrust, TRUTH ON THE MARKET (June 12, 2009, 11:55 AM), http://www.truthonthemarket.com/2009/06/12/commissioner-rosch-rhetoric-andthe- relationship-between-economics-and-antitrust/;
47. Ronald H. Coase, Industrial Organization: A Proposal for Research, in POLICY ISSUES AND RESEARCH OPPORTUNITIES IN INDUSTRIAL ORGANIZATION 59, 67 (Victor R. Fuchs, ed., 1972). For more modern critiques of the industrial organization literature in the same vein
48. Bruce H. Kobayashi, Game Theory and Antitrust: A Post Mortem, 5 GEO. MASON L. REV. 411 (1997);
49. Timothy J. Muris, Economics and Antitrust, 5 GEO. MASON. L. REV. 303 (1997).
50. ANTITRUST MODERNIZATION COMM'N, REPORT AND RECOMMENDATIONS 32 (2007) (recommending that "in industries where innovation, intellectual property, and technological change are central features... antitrust enforcers should carefully consider market dynamics in assessing competitive effects").
51. See, e.g., Robert Cooter, Information, Capital Markets, and Planned Development: An Essay, in REGULATING INNOVATION: COMPETITION POLICY AND PATENT LAW UNDER UNCERTAINTY (Geoffrey A. Manne & Joshua D. Wright eds., forthcoming 2011), available at http://papers.ssrn.com/sol3/papers.cfm?abstract- id=1462489;
52. Joshua D. Wright, Antitrust, Multi-Dimensional Competition, and Innovation: Do We Have An Antitrust Relevant Theory of Competition Now?, in REGULATING INNOVATION: COMPETITION POLICY AND PATENT LAW UNDER UNCERTAINTY (Geoffrey A. Manne & Joshua D. Wright eds., forthcoming 2011), available at http://papers/ssrn.com/sol3/papers/cfm?abstract-id=142489.
53. ANTITRUST MODERNIZATION COMM'N, supra note 37, at 38.
54. Richard J. Gilbert, Competition and Innovation, in 1 ISSUES IN COMPETITION LAW AND POLICY 577, 583 (W. Dale Collins ed., 2008) ("Economic theory does not provide unambiguous support either for the view that market power generally threatens innovation by lowering the return to innovative efforts or for the Schumpeterian view that concentrated markets generally promote innovation. ").
55. See, e.g., JEAN TIROLE, THE THEORY OF INDUSTRIAL ORGANIZATION (1988);
56. see also Timothy J. Muris, Comments on Antitrust Law, Economics, and Bundled Discounts 7 (July 15, 2005), available at http://govinfo.library.unt. edu/amc/commission-hearings/pdf/Muris.pdf ("In the same way that a visitor from Mars who reads only the mathematical IO literature could mistakenly conclude that the U. S. economy is rife with monopoly power, it would be a mistake to infer that the growing volume of theoretical papers examining bundling or bundled rebates as an exclusionary device implies that there is any growing or significant danger from the anticompetitive use of bundling.").
57. See, e.g., Charles I. Jones & John C. Williams, Measuring the Social Return to R&D, 113 Q. J. ECON. 1119 (1998) (estimating that the social return to research and development investment far exceeds the private return, meaning existing incentives for innovation are already lower than optimal).
58. See Jerry A. Hausman, Valuation of New Goods under Perfect and Imperfect Competition, in THE ECONOMICS OF NEW GOODS 209 (Timothy F. Bresnahan & Robert J. Gordon eds., 1997);
59. See OLIVER E. WILLIAMSON, MARKETS AND HIERARCHIES: ANALYSIS AND ANTITRUST IMPLICATIONS (1975).
60. Armen A. Alchian, Uncertainty, Evolution, and Economic Theory, 58 J. POL. ECON. 211, 212 (1950).
61. United States v. Microsoft Corp., 253 F.3d 34 (D. C. Cir. 2001) (en banc) (per curiam).
62. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 407 (2004).
63. See Microsoft, 253 F.3d at 50-58.
64. Google already has defended several private antitrust suits-surely this will not be the last. See, e.g., Kinderstart.com, LLC v. Google, Inc., No. C06-2057JF (RS), 2007 WL 831806 (N. D. Cal. Mar. 16, 2007).
65. See, e.g., Ben Elgin, Managing Google's Idea Factory, BUSINESSWEEK (Oct. 3, 2005), http://www.businessweek.com/magazine/contents/05-40/63953093.htm.
66. See, e.g., Stephen Shankland, Yahoo-Google Deal Doomed? No, They Insist, CNET. COM NEWS, Oct. 21, 2008, http://news.cnet.com/8301-1023-3-10071478-93. html.
67. Paul Suarez, FCC on Apple, DOJ on Google - the Feds are Tackling Tech, PC WORLD (Sept. 19, 2009), http://www.pcworld.com/article/172295/fcc-on-apple-doj- on-google-the-feds-are-tackling-tech.html.
68. Miguel Helft, Justice Dept. Opens Antitrust Inquiry Into Google Books Deal, N. Y. TIMES, Apr. 29, 2010, at B5, available at http://www.nytimes.com/ 2009/04/29/technology/internet/29google.html. Note the DOJ's brief in the case, the court's grant of a delay and ongoing renegotiations.
69. Steve Lohr, Google Deal Said to Bring U. S. Scrutiny, N. Y. TIMES, May 29, 2007, at C1, available at http://www.nytimes.com/2007/05/29/technology/ 29antitrust.html;
70. Press Release, Fed. Trade Comm'n, Fed. Trade Comm'n Closes Google/DoubleClick Investigation (Dec. 20, 2007), available at http://www.ftc.gov/opa/2007/12/googledc.shtm.
71. Press Release, Fed. Trade Comm'n, FTC Closes its Investigation of Google AdMob Deal (May 21, 2010), available at http://ftc.gov/opa/2010/05/ggladmob. shtm.
72. See Kinderstart.com, LLC v. Google, Inc., No. C06-2057JF (RS), 2007 WL 831806 (N. D. Cal. Mar. 16, 2007).
73. Nicholas Thompson & Fred Vogelstein, The Plot to Kill Google, WIRED (Jan. 19, 2009), http://www.wired.com/techbiz/it/magazine/17-02/ff-killgoogle.
74. On the economics of information, economists have progressed little since Professor George Stigler's important account of the economics of information and the importance of search-of obvious salience here. See George J. Stigler, The Economics of Information, 69 J. POL. ECON. 213 (1961). Although much of the economics of networks and information technology has made important advances, Professor Stigler's (and Freidrich von Hayek's) fundamental point that information is a good like any other, subject to the economics of scarcity, still undergirds our understanding today.
75. United States v. Grinnel Corp., 384 U. S. 563, 571 (1966).
76. See KEN AULETTA, GOOGLED: THE END OF THE WORLD AS WE KNOW IT 16 (2009)
77. (quoting Google CEO Eric Schmidt as saying, "We are in the advertising business").
78. Results Page, GOOGLEGUIDE, http://www.googleguide.com/results-page.html (last visited Nov. 6, 2010).
79. Ads, GOOGLEGUIDE, http://googleguide.com/ads.html (last visited Nov. 6, 2010).
80. Results, supra note 73.
81. Ads, supra note 74.
82. VIRGINIA SCOTT, COMPANIES THAT CHANGED THE WORLD: GOOGLE 76 (2008).
83. AMY N. LANGVILLE & CARL DEAN MEYER, GOOGLE'S PAGERANK AND BEYOND: THE SCIENCE OF SEARCH ENGINE RANKING 25 (2006).
84. Udi Manber, Introduction to Google Search Quality, THE OFFICIAL GOOGLE BLOG (May 20, 2008, 6:20 PM), http://googleblog.blogspot.com/2008/05/ introduction-togoogle-search-quality.html.
85. HOWIE JACOBSON, GOOGLE ADWORDS FOR DUMMIES 1-3 (2d ed., 2009).
86. Ads, supra note 74.
87. JACOBSON, supra note 84.
88. DAVID O'CONNELL, MAKING SENSE OF GOOGLE ADSENSE 4-8 (2008).
89. Search Engine Statistics for 2006-2007, ACCURACAST (Feb. 28, 2007), http://www.accuracast.com/seo-weekly/se-statistics.php.
90. See Fed. Trade Comm'n, Statement Concerning Google/DoubleClick, FTC File No. 071-0170, at 3 (Dec. 20, 2007), available at http://www.ftc.gov/os/caselist/ 0710170/071220statement.pdf
91. ("Thus, search engines provide a unique opportunity for advertisers to reach potential customers. Advertisers view online content providers differently.").
92. Robert W. Hahn & Hal J. Singer, An Antitrust Analysis of Google's Proposed Acquisition of DoubleClick 5, 24-32 (AEI-Brookings Joint Center for Regulatory Studies, Working Paper No. 07-24, 2008), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1016189.
93. *6 (N. D. Cal. Mar. 16, 2007) (noting that "there is no logical basis for distinguishing the Search Ad Market from the larger market for Internet advertising");
94. Person v. Google Inc., 456 F. Supp. 2d. 488 (S. D. N. Y. 2006).
95. GEORGE JOSEPH STIGLER, THE ORGANIZATION OF INDUSTRY 201 (Univ. of Chi. Press 1983) (1968).
96. Larry D. Woodard, Pepsi's Big Gamble: Ditching Super Bowl for Social Media, ABC NEWS, Dec. 23, 2009, http://abcnews.go.com/print?id=9402514.
97. Avi Goldfarb & Catherine Tucker, Search Engine Advertising: Pricing Ads to Context 96 (NET Institute Working Paper No. 07-23, 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1021451&rec=1&srcabs= 10084 (determining the price of "ambulance chaser" lawyer ads was significantly more expensive in states prohibiting direct mail solicitation by attorneys).
98. AULETTA, supra note 72, at 16.
99. Leonard N. Reid et al., Local Advertising Decision Makers' Perceptions of Media Effectiveness and Substitutability, 18 J. MEDIA ECON. 35 (2005).
100. And, not surprisingly, large national advertisers are among AdWords' top customers. During one thirty-day period in September 2009, the top five Ad-Words spenders included Progressive, Target, and Geico (the other two were Expedia and AOL, both of which have online-only presences). See Biggest Online Ad Spenders with Adwords - Top PPC Advertisers, FRUITION INTERNET MARKETING BLOG (Sept. 24, 2009), http://fruition.net/ppc-management/biggest-online-adspenders- with-adwords-top-ppc-advertisers/.
101. David S. Evans, The Economics of the Online Advertising Industry, 7 REV. OF NETWORK ECON. 359, 359-60 (2008).
102. See Woodard, supra note 99.
103. AULETTA, supra note 72, at 172-73.
104. Ads, supra note 74.
105. Sha Yang & Anindya Ghose, Analyzing the Relationship Between Organic and Sponsored Search Advertising: Positive, Negative or Zero Interdependence?, 29 MARKETING SCI., 602, 603 (2010).
106. See, e.g., Bo Xing & Zhanghi Lin, The Impact of Search Optimization on Online Advertising Market, in ICEC 2006 PROCEEDINGS OF 8TH INTERNATIONAL CONFERENCE ON ELECTRONIC COMMERCE 519 (2006).
107. Lizhen Xu et al., Too Organic for Organic Listing? Interplay Between Organic and Sponsored Listing in Search Advertising 1, 2-3 (McCombs Research Paper Series No. IROM-13-09, 2009), available at http://www.mccombs.utexas.edu/ news/research-calendar/IROM-Xu-10-16-09.pdf.
108. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER GUIDELINES 7 (2010), available at http://www.ftc.gov/os/2010/08/100819hmg.pdf.
109. For example, in the thirty days ending on February 23, 2010, less than ten percent of visits to eBay.com originated from a search engine. See eBay.com Site Info, ALEXA, http://www.alexa.com/siteinfo/ebay.com (last visited Nov. 6, 2010).
110. See Donna L. Hoffman & Thomas P. Novak, How to Acquire Customers on the Web, HARV. BUS. REV., May-June 2000, at 3, 5, 7.
111. INNOVATIONS IN SEARCH TECHNOLOGIES, http://www.a9.com (last visited Nov. 6, 2010).
112. See Geoffrey A. Manne & E. Marcellus Williamson, Hot Docs vs. Cold Economics: The Use and Misuse of Business Documents in Antitrust Enforcement and Adjudication, 47 ARIZ. L. REV. 609, 610 (2005).
113. JACOBSON, supra note 84.
114. Susan Athey & Glenn Ellison, Position Auctions with Consumer Search 3 (Harvard Univ. & Mass. Inst. of Tech. Working Paper, No. D44, L86, M37, 2008) available at http://kuznets.fas.harvard.edu/~athey/position.pdf.
115. Udi Manber, Introduction to Google Search Quality, THE OFFICIAL GOOGLE BLOG (May 20, 2008, 6:20 PM), http://googleblog.blogspot.com/2008/05/ introductionto-google-search-quality.html.
116. See, e.g., Oren Bracha & Frank Pasquale, Federal Search Commission? Access, Fairness and Accountability in the Law of Search, 93 CORNELL L. REV. 1149, 1181 (2008) ("Network Effects in Improving Search Responsiveness. The more searches an engine gets, the better able it is to sharpen and perfect its algorithm. The result is that each additional user decreases the cost of a better quality service for all users. Thus, incumbents with large numbers of users enjoy substantial advantages over smaller entrants.")
117. (referencing DAVID A. VISE & MARK MALSEED, THE GOOGLE STORY 215 (2005));
118. Kristine Laudadio Devine, Preserving Competition in Multi-Sided Innovative Markets: How Do You Solve a Problem Like Google?, 10 N. C. J. L. & TECH. 59 (2008) (describing Google's network effects by analogy and conjecture, although going into far more detail than any of the other articles cited);
119. James Grimmelmann, How to Fix the Google Book Search Settlement, J. INTERNET L., Apr. 2009, at 1, 14 ("Thus, Google's first-past-the-post status here could easily turn into a durable monopoly. That might be the inevitable result anyway; this is a market with substantial economies of scale and positive network effects.");
120. Peter S. Menell, Knowledge Accessibility and Preservation Policy for the Digital Age, 44 HOUS. L. REV. 1013, 1052 (2007) (listing "concentration (due to network effects) " on a table describing competitive effects in Google Book Search);
121. Viva R. Moffat, Regulating Search, 22 HARV. J. L. & TECH 475, 489 (2009) ("Additionally, while Google may not be a monopoly, it certainly has a great deal of market power and network effects also exist in the search world. These factors, together with the arguably substantial barriers to entry in the search engine market, permit the analogy to common carriers." (citing a New York Times article referring to "network advantages"));
122. William D. Rahm, Watching over the Web: A Substantive Equality Regime for Broadband Applications, 24 YALE J. ON REG. 1, 16 (2007) ("Broadband technology exhibits two network effects.... Companies like Google, Vonage and Amazon will develop more services when they are confident that there are more users whom they can reach.");
123. J. Gregory Sidak, A Consumer-Welfare Approach to Network Neutrality Regulation of the Internet, 2 J. COMPETITIVE L. & ECON. 349, 454 (2006) ("Network effects make the market for Internet portals highly concentrated. Entry is difficult because a critical mass of users has chosen a particular portal (Yahoo! or Google) to begin their Internet experience. A critical mass of advertisers has followed.");
124. Kevin Werbach, Only Connect, 22 BERKELEY TECH. L. J. 1233, 1292 (2007) ("Nonetheless, it is possible for applications to become exclusive platforms with anticompetitive effects similar to those of exclusive physical broadband networks. Google's dominant search engine and MySpace's massive social networking site might be candidates for such scrutiny at some point in the future. Because these are network-centric applications, whatever ability they have to distort competition and innovation arises from their ability to capture network effects.").
125. "[Multisided platforms] have business models that are not yet well understood and engage in highly complex business strategies; unusual practices are suspect practices in our experience." David S. Evans & Michael D. Noel, Defining Markets That Involve Multi-Sided Platform Businesses: An Empirical Framework With an Application Google's Purchase of DoubleClick 4 (AEI-Brookings Joint Center for Regulatory Studies, Working Paper 07-18, 2007), available at http://papers.ssrn.com/sol3/papers.cfm?abstract-id=1089073.
126. Stan J. Liebowitz & Stephen E. Margolis, Network Externality: An Uncommon Tragedy, 8 J. ECON. PERSP. 133, 135 (1994).
127. Complaint ¶ 91, TradeComet. Com LLC v. Google, Inc., 693 F. Supp. 2d 370 (S. D. N. Y. 2009) (No. 09Civ. 1400 (SHS)).
128. This argument is analogized to a claim that received traction in the Microsoft litigation. See United States v. Microsoft Corp., 253 F.3d 34, 54-55 (D. C. Cir. 2001) (en banc) (per curiam) (finding monopoly power as a result of a "'chickenand-egg' situation [that] ensures that [software] applications will continue to be written for the already dominant Windows, which in turn ensures that consumers will continue to prefer it over other operating systems"). But the comparison is inapposite. In Microsoft, the incentives of platform users external to the platform itself were being driven by the feedback effect between sides of the network. Here the argument has the platform itself (Google) driving the incentives through investment. In the present case the network effect is endogenous and under Google's (or a competitor's) control. Conversely, in Microsoft the effect was exogenous and therefore difficult for competitors to disrupt.
129. And of course "difficult" does not mean "impossible." Entrants could pay for new users, and they do so in a variety of creative ways. Microsoft, for example, introduced its "cashback" program on its Live Search (now Bing) search engine, offering end users who searched for and purchased products using Microsoft's search platform a discount on the purchased product. Bing Shopping, WIKIPEDIA, http://en.wikipedia.org/wiki/Bing- Shoppingashback-program (last visited Nov. 6, 2010);
130. see Daniel F. Spulber, Consumer Coordination in the Small and in the Large: Implications for Antitrust in Markets with Network Effects, 4 J. COMPETITION L. & ECON. 207, 257-58 (2008).
131. This makes especially troubling the unfounded and undocumented claims found in Bracha and Pasquale's Federal Search Commission paper. In explaining why they think "robust and dynamic competition [is] unlikely", and why the search engine market is subject to "high barriers to entry", the authors report that "[s]earch algorithms may be analogous to the high-cost infrastructure required for entry into the utility or railroad markets." Bracha & Pasquale, supra note 126, at 1180-81. At the same time, the authors argue that "[t]he more searches an engine gets, the better able it is to sharpen and perfect its algorithm." Id. The last point is not true, or at least not true beyond a minimum scale. And consequently, the claim that an algorithm is, in essence, a "natural monopoly" or essential facility (thus requiring regulatory or antitrust intervention to pry open access to competitors) is equally fallacious. While Google's specific algorithm is not accessible by competitors, it is not the case that another viable algorithm is inaccessible, nor the data sufficient to manage it. And, of course, in addition to Google's major competitors there are dozens of other search engines competing with Google's specific algorithm. See List of search engines, WIKIPEDIA, http://en.wikipedia.org/wiki/List-of-search-engines (last visited Nov. 6, 2010).
132. Evidence demonstrates that thicker auctions result in higher prices, irrespective of the characteristics of additional bidders-a presumably undesirable consequence (to the bidders) of a broader network. See, e.g., Joseph Farrell & Paul Klemperer, Coordination and Lock-in: Competition with Switching Costs and Network Effects in 3 THE HANDBOOK OF INDUSTRIAL ORGANIZATION 2018 (M. Armstrong and R. Porter eds., 2007) ("Second, there may be no intra-group network effects; there may even be intra-group congestion. Thus, given the number of photographers, a developer prefers fewer other developers for competitive reasons, just as with merchants accepting credit cards.");
133. Paul Klemperer, What Really Matters in Auction Design, 16 J. ECON. PERSP. 169, 172 (2002).
134. 15 U. S. C. § 2 (2006).
135. BORK, supra note 31, at 57 ("The bare language of the Sherman Act conveys little....");
136. Frank H. Easterbrook, Vertical Arrangements and the Rule of Reason, 53 ANTITRUST L. J. 135, 136 (1984) ("The language of the Sherman Act governs no real cases.");
137. Thomas E. Kauper, Section Two of the Sherman Act: The Search for Standards, 93 GEO. L. J. 1623, 1623 (2005) ("Section Two of the Sherman Act has been a source of puzzlement to lawyers, judges and scholars, a puzzlement derived in large part from the statute's extraordinary brevity.").
138. United States v. Grinnell Corp., 384 U. S. 563, 570-571 (1965).
139. U. S. DEP'T OF JUSTICE, COMPETITION AND MONOPOLY: SINGLE FIRM CONDUCT UNDER SECTION 2 OF THE SHERMAN ACT (2008), available at http://www.usdoj.gov/ atr/public/reports/236681.htm.
140. See Benjamin Klein, Exclusive Dealing as Competition "On the Merits", 12 GEO. MASON L. REV. 119 (2003).
141. United States v. Microsoft Corp., 253 F.3d 34 (D. C. Cir. 2001) (en banc) (per curiam).
142. Leah Brannon & Douglas H. Ginsburg, Antitrust Decisions of the U. S. Supreme Court, 1967 to 2007, 3 COMPETITION POL'Y INT'L 3 (2007). Brannon and Ginsburg, for example, find that from 1997 to 2006, eighty-five percent of all antitrust decisions were decided by a supermajority margin (and each in favor of the defendant, although this is fairly predictable given the proplaintiff nature of 1960s antitrust jurisprudence). Id. at 20. When one considers the Supreme Court decisions during the Bush administration, for example, the aggregate vote count is 86-9 with seven of eleven opinions generating unanimous agreement.
143. 525 U. S. 128 (1998).
144. See Pac. Bell Tel. Co. v. Linkline Cmmc'ns, Inc., 129 S. Ct. 1109 (2009);
145. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U. S. 312 (2007);
146. Verizon Commc'ns v. Law Offices of Curtis V. Trinko, 540 U. S. 398 (2004);
147. NYNEX, 525 U. S. 128. For an analysis of the Roberts Court antitrust decisions
148. see Joshua D. Wright, The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond, 3 COMPETITION POL'Y INT'L 25 (2007) (arguing that Chicago School economic principles characterize the Roberts Court antitrust jurisprudence).
149. Trinko, 540 U. S. at 407.
150. See David S. Evans & Keith N. Hylton, The Lawful Acquisition and Exercise of Monopoly Power and its Implications for the Objectives of Antitrust, 4 COMPETITION POL'Y INT'L 203, 203 (2008).
151. See, e.g., Linkline, 129 S. Ct. at 1118;
152. Trinko, 540 U. S. at 407-08;
153. NYNEX, 525 U. S. at 136-37.
154. See Frank H. Easterbrook, When Is It Worthwhile to Use Courts to Search for Exclusionary Conduct?, 2003 COLUM. BUS. L. REV. 345, 345 ("Aggressive, competitive conduct by any firm, even one with market power, is beneficial to consumers. Courts should prize and encourage it. Aggressive, exclusionary conduct is deleterious to consumers, and courts should condemn it. The big problem lies in this: competitive and exclusionary conduct look alike.").
155. See, e.g., Linkline, 129 S. Ct. at 1120;
156. Trinko, 540 U. S. at 414 ("The cost of false positives counsels against an undue expansion of § 2 liability.");
157. NYNEX, 525 U. S. at 136-37;
158. Spectrum Sports, Inc. v. McQuillan, 506 U. S. 447, 456, 458 (1993) ("[T]his Court and other courts have been careful to avoid constructions of § 2 which might chill competition, rather than foster it.");
159. Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U. S. 717, 728 (1988);
160. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U. S. 574, 594 (1986) (stating that mistaken inferences in predatorypricing cases "are especially costly because they chill the very conduct the antitrust laws are designed to protect");
161. Copperweld Corp. v. Independence Tube Corp., 467 U. S. 752, 767-68 (1984) (noting that scrutiny of single firms under the Sherman Act is appropriate only when they pose a danger of monopolization, an approach that "reduces the risk that the antitrust laws will dampen the competitive zeal of a single aggressive [competitor]").
162. 525 U. S. at 133 (1998) ("[C]ertain kinds of agreements will so often prove so harmful to competition and so rarely prove justified that the antitrust laws do not require proof that an agreement of that kind is, in fact, anticompetitive in the particular circumstances.").
163. 522 U. S. 3, 10 (1997) (Certain "types of restraints... have such predictable and pernicious anticompetitive effect, and such limited potential for procompetitive benefit, that they are deemed unlawful per se.").
164. 509 U. S. 209, 223-24 (1993).
165. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U. S. 877, 886 (2007).
166. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U. S. 312, 319-20 (2007).
167. 540 U. S. 398, 414 (2004).
168. Credit Suisse Sec. (USA) LLC v. Billing, 551 U. S. 264, 283 (2007).
169. 129 S. Ct. 1109, 1122 (2009).
170. Trinko, 540 at 414 (citation omitted)
171. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U. S. 574, 594 (1986)).
172. United States v. E. I. du Pont de Nemours & Co, 351 U. S. 377, 391 (1956).
173. Stephen Shankland, Google's U. S. Search Share Nears 70 Percent, CNET NEWS, July 15, 2008, http://news.cnet.com/8301-1023-3-9991866-93.html.
174. For a discussion of the substantial complexities in determining relevant markets and market share in two-sided markets, see David S. Evans & Michael D. Noel, Defining Markets that Involve Multi-Sided Platform Businesses: An Empirical Framework with an Application to Google's Purchase of DoubleClick (Nov. 6, 2007), http://ssrn.com/abstract=1027933.
175. See David S. Evans, Two-Sided Market Definition, in MARKET DEFINITION IN ANTITRUST: THEORY AND CASE STUDIES, ABA SECTION OF ANTITRUST LAW 7 (Forthcoming 2010).
176. See, e.g., Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U. S. 451, 481 (1992) (finding eighty to ninety-five percent predominant);
177. United States v. Grinnell Corp, 384 U. S. 563, 571 (1966)
178. (finding eighty-seven percent predominant); United States v. E. I. du Pont Numours & Co., 351 U. S. 377, 379 (1956)
179. (finding seventy-five percent predominant); American Tobacco Co. v. United States., 328 U. S. 781 (1946)
180. United States v. Dentsply Int'l Inc., 399 F.3d 181, 188 (3d Cir. 2005) (finding seventy-five to eighty percent predominant).
181. United States v. Microsoft Corp., 253 F.3d 34, 49-50 (D. C. Cir. 2001) (en banc) (per curiam).
182. Michael L. Katz & Carl Shapiro, Systems Competition and Network Effects, 8 J. ECON. PERSP. 93, 95-96 (1994).
183. Microsoft, 253 F.3d at 55-56.
184. Id. Note that the court does not even assess the extent that mere discouragement operates as an effective entry barrier. The district court, we note, however, was not quite so circumspect. See United States v. Microsoft, 87 F. Supp. 2d 30, 42 (D. D. C. 2000)
185. aff'd in part, rev'd in part, 253 F.3d 34 (D. C. Cir. 2001).
186. Stan J. Liebowitz & Stephen E. Margolis, Network Effects, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 673, 674 (Peter Newman ed., 1998).
187. The general economic consequences of indirect and direct network effects are substantially different, and indirect network effects are not a source of inefficient technology lock-in-and they thus do not pose a barrier to entry. See Stanley J. Liebowitz & Stephen E. Margolis, Network Effects, in 1 HANDBOOK OF TELECOMMUNICATIONS ECONOMICS: STRUCTURE, REGULATION AND COMPETITION 79, 85-86 (Martin E. Cave et al. eds., 2002). See generally Spulber, supra note 8 (explaining why technology lock-in rarely occurs).
188. See, e.g., Paddock Publ'ns, Inc. v. Chi. Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996) ("Competition-for-the-contract is a form of competition that antitrust laws protect rather than proscribe, and it is common. ").
189. Menasha Corp. v. News Am. Mktg. In-Store, Inc., 354 F.3d 661, 663 (7th Cir. 2004).
190. Joshua D. Wright, Antitrust Law and Competition for Distribution, 23 YALE J. ON REG. 169, 170, 191 (2006); see also Klein, supra note 149 (explaining that, contrary to the "unfortunate tendency" of viewing exclusive distribution contracts as uncompetitive, such contracts often involve "competition on the merits").
191. See Benjamin Klein & Andres V. Lerner, The Expanded Economics of Free-Riding: How Exclusive Dealing Prevents Free-Riding and Creates Undivided Loyalty, 74 ANTITRUST L. J. 473, 483-84, 498 (2007).
192. Benjamin Klein & Kevin M. Murphy, Exclusive Dealing Intensifies Competition for Distribution, 75 ANTITRUST L. J. 433, 437 (2008). This explanation is related to, and provides the economic basis for, the argument that exclusives "instigated" by customers should enjoy a presumption of legality.
193. See Richard M. Steuer, Customer-Instigated Exclusive Dealing, 68 ANTITRUST L. J. 239, 240-42 (2000).
194. 11 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1821 (2nd ed. 2005) (citation omitted).
195. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U. S. 2, 7 (1984) (holding that a hospital with thirty percent of the relevant market did not possess significant market power).
196. Jonathan M. Jacobson, Exclusive Dealing, "Foreclosure", and Consumer Harm, 70 ANTITRUST L. J. 311, 324 n. 85 (2002) (listing exemplary decisions illustrating use of the forty percent threshold).
197. See United States v. Microsoft Corp., 253 F.3d 34, 70-71 (D. C. Cir. 2001) (en banc) (per curiam) (finding less than forty percent foreclosure sufficient for antitrust liability);
198. see also Dennis W. Carlton, A General Analysis of Exclusionary Conduct and Refusal to Deal-Why Aspen and Kodak Are Misguided, 68 ANTITRUST L. J. 659, 676, 678 (2001).
199. Alden F. Abbott & Joshua D. Wright, Antitrust analysis of tying arrangements and exclusive dealing, in 4 ENCYCLOPEDIA OF LAW AND ECONOMICS, ANTITRUST LAW AND ECONOMICS 183, 196 (Keith N. Hylton ed., 2nd ed. 2010).
200. Microsoft, 253 F.3d at 70-71.
201. Microsoft, 253 F.3d at 70-71.
202. A number of courts have held that exclusive contracts of one year or less are presumptively lawful. See, e.g., Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1059 (8th Cir. 2000);
203. CDC Techs., Inc. v. IDEXX Labs, Inc., 186 F.3d 74, 81 (2d Cir. 1999);
204. Omega Envtl. Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1163-64 (9th Cir. 1997);
205. Paddock Publ'ns, Inc. v. Chicago Tribune Co., 103 F.3d 42, 47 (7th Cir. 1996) ("[T]he FTC and the Supreme Court concluded that even exclusive dealing contracts are lawful if limited to one year's duration. ");
206. Thompson Everett, Inc. v. Nat'l Cable Adver. L. P., 57 F.3d 1317, 1324-25 (4th Cir. 1995);
207. U. S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 596 (1st Cir. 1993);
208. *8 (D. Del. Mar. 31, 2001);
209. *1-2 (W. D. Ky. Oct. 26, 1983)
210. (enjoining requirements contracts covering large percentage of the market though only thirty days to one year in duration), aff'd per curiam, 758 F.2d 654 (6th Cir. 1985).
211. See Daniel Lyons, They Might Be a Little Evil, NEWSWEEK, June 1, 2009, at 24;
212. Joe Nocera, Stuck in Google's Doghouse, N. Y. TIMES, Sept. 13, 2008, at C1.
213. Compare Complaint, supra note 134 ¶ 8, with Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U. S. 585, 601 (1985).
214. See, e.g., United States v. Colgate & Co., 250 U. S. 300, 307 (1919) (noting that antitrust laws typically do not "restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal"). The right to refuse to deal with rivals is not absolute, however, but it is close.
215. see also Aspen Skiing, 472 U. S. at 601 ("[T]he high value... placed on the right to refuse to deal with other firms does not mean that the right is unqualified.").
216. See generally Verizon Comm. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 407 (2004).
217. Trinko, 540 U. S. at 408.
218. 472 U. S. at 608.
219. Trinko, 540 U. S. at 407-08
220. (citing Colgate, 250 U. S. at 307).
221. See, e.g., Ronald A. Cass & Keith N. Hylton, Preserving Competition: Economic Analysis, Legal Standards and Microsoft, 8 GEO. MASON L. REV. 1, 27 (1999);
222. Frank H. Easterbrook, On Identifying Exclusionary Conduct, 61 NOTRE DAME L. REV. 972, 973 (1986).
223. We do not separately discuss this claim as an essential facility claim both because the Supreme Court has refused to endorse such a claim, see Trinko, 540 U. S. at 410, and because there is near universal agreement from commentators that it should be abandoned.
224. See, e.g., 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW, ¶ 771c, at 196 (3d ed. 2008) (noting that "the essential facility doctrine is both harmful and unnecessary and should be abandoned");
225. Michael Boudin, Antitrust Doctrine and the Sway of Metaphor, 75 GEO. L. J. 395, 402 (1986) (noting "embarrassing weakness" of essential facilities doctrine);
226. Abbott B. Lipsky, Jr. & J. Gregory Sidak, Essential Facilities, 51 STAN. L. REV. 1187, 1195 (1999) ("[M]andatory access remedies, such as the essential facilities doctrine, do not fit comfortably within antitrust law.");
227. Gregory J. Werden, The Law and Economics of the Essential Facility Doctrine, 32 ST. LOUIS U. L. J. 433, 480 (1987) ("Courts should reject the doctrine").
228. U. S. DEP'T OF JUSTICE, supra note 16, at 42 n. 64.
229. Trinko, 540 U. S. at 408.
230. ANTITRUST MODERNIZATION COMM'N, supra note 37, at 102 ("[F]orced sharing requires courts to determine the price at which such sharing must take place, thereby transforming antitrust courts into price regulators, a role for which they are ill suited.").