Google versus the EU: Sigh. You can't exploit a contestable monopoly

A better alternative

However, isn't the point of providing a useful free service to leverage it into exposure for your other profitable services? The Commission do rather seem to be missing the point, don't they? Especially over the basics of the damn business model. Leonid Bershidsky also has a good point to make:

Few people are inclined to defend a monopoly, and Google is one. In Europe, its market share in search exceeds 92 per cent. Yet I use its comparison shopping product because it works, not because it is imposed on me. It's easy enough to find other services if I'm not satisfied with what Google offers.

Once a competitor develops a better alternative, I will probably know of it within days thanks to the social networks or ads on Google itself. Then, I might install a mobile app for that product and never even use the search engine for comparison shopping again.

He also points out that the other comparison engines are, to put it mildly, a bit crap. But the major economic point is there in Bershidsky. The moment Google starts screwing over us consumers then we'll bugger off elsewhere. Simply because search, comparison shopping, or whatever else it is that people are complaining about, are all contestable.

And they really are so: it's only very recently that Google has managed to crack 50 per cent of the search market where I am, in the Czech Republic. Seznam has been doing valiantly in keeping them at bay. And given that this is possible we can therefore see that this really is something that is contestable.

I have all sorts of suspicions about the economic nationalists and protectionists, this is true. I'm also not, as most of you will already know, greatly enamored of the very idea of the EU let alone the reality of it. However, it really is true that there's a very basic piece of economics at the root of this.

Given that you cannot exploit contestable monopolies there therefore needs to be no regulation of them. Sure, we do need to look at dominant market positions and decide whether that is a contestable market. Perhaps it's protected by some piece of legislation, perhaps a patent or copyright makes it a monopoly.

Maybe it's a natural monopoly like the Grid or sewage services to a town or area (really, nobody's going to build two sets of pipes to the same houses).

If it's a natural, or though some other means a non-contestable monopoly, then regulate away. We might have interesting arguments about how to regulate but the basic desire and even necessity of doing so will be agreed by almost all economists.

However, if we decide that despite market dominance it's really a contestable monopoly then no regulation is needed. Anyone trying to exploit that position will call into being the very competition that stops them having that monopoly, that dominant position. We can leave it all be and rely upon the threat of competition, even if there is no actual such, to keep them in line.

It's worth noting something about Rockefeller's Standard Oil. It very definitely had a dominant market position and it worked very hard to keep it, but Rockefeller was a shrewd cookie. He continued to push the price of kerosene and other oil products downwards, even when he was the dominant player.

He knew that to start to rook the consumers would call into being that very competition that he had crushed.

Only non-contestable monopolies need regulation. So what is the Commish doing? Playing politics more than anything. ®