According to the Washington Post, the U.S. Federal Trade Commission (FTC) and Google may be about to settle their differences.  Importantly, the issue of ‘search bias’ appears to be downplayed, if not completely ‘off the table’. But according to the Post:

This development has angered a broad group of Google competitors and critics …

The claims against Google may or may not have merit. But the prospect of regulatory gaming looms large here. If Google’s competitors believe that Google has violated competition laws in the US then they have two alternatives.

  1. They can take a private action against Google seeking treble damages. For background on US private actions, see here.  Private actions require the complainants to bear the legal expense and risk of proving their case. But treble damages are a strong inducement if Google’s competitors believe that they have a strong case.
  2. They can lobby the FTC to take action. If this lobbying is successful, then the FTC (or rather the US taxpayers) bear the legal cost and risk of running the case. If the FTC loses then the competitors gain by having Google distracted during a drawn out antitrust battle. And if the FTC wins then the competitors can ‘ride the coat-tails’ of the Court decision by then launching a private action. The judgement gained by the FTC against Google would be prima facie evidence in the private action so the risk of such a ‘coat-tail’ action would be low.

It is pretty clear that a dominant strategy will be to try to get the FTC to intervene.

But what if Google’s competitors are  just gaming the system? What if they do not believe that there is a breach of the laws – or at least not one that is likely to be proven in Court? In that situation it would be silly to launch a costly private action. But it would still be worthwhile to lobby the FTC to take action against Google. At worst, this will lead to Google being distracted for a while as it defends the claims made against it. And at best, someone at the FTC will be tempted by a ‘big scalp’ and take a case against Google, even if the chance of winning is not high.

So the best approach for competitors is clear. If you are losing in the market place, regardless of whether or not there is a real breach of competition laws, the best thing to do is to lobby the competition authorities to try to convince them to take legal action. This approach ‘socializes the losses and privatizes the gains’ from antitrust action.

Is this the situation in Google? I do not know. But one indicator will be the behaviour of the complainant competitors if the FTC and Google settle. If the complainants believe that they have a case then they can still run a private action. If that doesn’t occur then it may reflect that the FTC has been played.

One Response to Are competition regulators being gamed? The trade off between lobbying and private antitrust actions

  1. Jim Rose says:

    Was it Frank Easterbrook in the early 1980s or was it Aaron Director in the 1950s who said that the clearest evidence of a pro-competitive merger was if the rival firms asked the antitrust agency to oppose it. Ditto, antitrust action supported by rival firms must be subverting competition.

    Robert Tollison worked as chief economist as the FTC in the first Reagan administration. He wrote extensively on his experiences there and the role of special interests, in-house lawyers’ demand for trial experience and congressional oversight committee memberships in litigation selection.

    Stigler was blunter: ‘Regulation and competition are rhetorical friends and deadly enemies: over the doorway of every regulatory agency save two should be carved: “Competition Not Admitted.” The Federal Trade Commission’s doorway should announce, “Competition Admitted in Rear,” and that of the Antitrust Division, “Monopoly Only by Appointment”’

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