The Role of Switching Costs in Antitrust Analysis: A Comparison of Microsoft and Google

Article excerpt

TABLE OF CONTENTS  INTRODUCTION  I. THE ECONOMICS OF SWITCHING COSTS   A. Switching Costs and Competitive Analysis   B. Types of Switching Costs  II. THE CENTRALITY OF HIGH SWITCHING COSTS, INHERENT   AND STRATEGIC, TO THE MICROSOFT BROWSER CASE   AND OTHER ANTITRUST CASES     A. Switching Costs were Key to the Government Showing that       Microsoft had Monopoly Power     B. Microsoft Acted Anticompetitively to Increase, Maintain,       and Exploit High Switching Costs     C. Role of Switching Costs Elsewhere in Antitrust Case Law         1. Role of Switching Costs in Narrowing Market           Definition         2. Role of Switching Costs in Assessing Market Power         3. Role of Switching Costs in Exclusionary Conduct  III. A COMPARISON OF SWITCHING COSTS: MICROSOFT   WINDOWS VS. GOOGLE SEARCH     A. Comparison by Types of Switching Costs     B. Evidence of Switching Across Generalized Search Engines       (GSEs)     C. Alternatives to Generalized Search Engines for Searching         1. Evidence on Switching Between Vertical Search and           Generalized search         2. Evidence on Switching Between GSEs and Mobile           Apps         3. Evidence on Switching Between Social Media Search           and Generalized Search         4. Evidence on Arrival Rates at Websites Directly or           Indirectly, Not From a GSE         5. Evidence on Competition Between Emerging           Technologies and Generalized Search  SUMMARY AND CONCLUSION 

INTRODUCTION

Is Google the new Microsoft? Many think that it is, and in particular there has been a chorus of competition complaints (ironically many originating from Microsoft) that assert that Google's conduct and position today is quite parallel to Microsoft's position in the "Microsoft case," the case brought by the Department of Justice in 1998. (1)

we contend in this article, however, that there is a central difference which should remain in constant focus in any antitrust analysis. The cost of a user switching from Google Search to another search engine today is trivial compared to the cost of a user switching from Microsoft windows to another operating system in 1998. Moreover, in the Microsoft case, the government's theory was that Microsoft was taking strategic actions to maintain high switching costs by maintaining an "applications barrier to entry." (2) There is no parallel with Google, and the implication as we shall explain is that Google Search, if it poses any threat today, does not pose the same antitrust threat that Microsoft windows posed in 1998. In this article, we explore the importance of high switching costs in the Microsoft case and in antitrust cases more generally, and we explain the criticality of the absence of significant costs for users switching from Google Search.

The Federal Trade Commission (FTC) recently decided not to bring a monopolization case against Google Search after a 19month investigation. (3) But this is by no means the end of the matter: the European commission (EC) is "examining proposals put forward by Google to resolve complaints" and expects resolution after the Commission's summer break. (4) The FTC decision notwithstanding, competitors continue to complain to antitrust authorities and urge them to investigate Google Search for anticompetitive conduct. (5) On January 30, 2013, the Initiative for a Competitive Online Marketplace (ICOMP), a coalition including Microsoft Corp., submitted a new dossier of allegations to the European Commission. (6) The most widely reported accusations against Google claim that it biases in favor of its own information or services in search results. (7)

Comparisons between antitrust complaints in the Microsoft case with current (so far non-litigated) complaints against Google Search ignore two fundamental differences related to the switching costs facing users of Microsoft Windows and Google Search. First, Microsoft has dominated operating systems for personal computers for nearly 30 years, mainly because switching costs for users and application developers were and are high--prohibitively high for many. …