Antitrust Remedies in Digital Search Hinge on User Behavior 

In “Competition, Defaults, and Antitrust Remedies in Digital Search,” Francesco Decarolis and Muxin Li of Bocconi University explain how to enhance competition in digital markets by analyzing the recent changes to default search apps on Android devices as a result of the European Commission decision in the Google Android case.

Below are a few extracts from the article:

On July 18, 2018, the European Commission (“EC”) fined Google €4.34 billion for imposing illegal restrictions on Android device manufacturers and mobile network operators. The case revolved around contractual restrictions that Google had allegedly imposed to strengthen its dominant position in the market for internet search. The EC, in addition to imposing a fine, also coordinated with Google a change in business practices involving the determination of the default search engine on new Android devices.

From March 2020, Google had to implement a choice screen for general search providers on all new Android phones and tablets shipped in the European Economic Area (“EEA”) and the UK where the Google Search App is pre-installed. During the device setup, users will be required to select their preferred search provider from a screen offering a choice of four different providers. Choosing a search provider will (i) set the search provider in a home screen search box; (ii) if Google Chrome is installed, set the search provider as Chrome’s default search provider; and (iii) install the search app of the selected provider. An auction will determine the other search providers that will appear in the choice screen along with Google.

This pay-to-play model has then received numerous criticism and questions in the past two years. First, people are concerned that the market share of Google seems to remain undented after the screen choice auction. Second, search engines competing with Google complained about the fact that the auction mechanism favors search engines that extract high value from customers’ data (or from customers).

To promote the antitrust goal of the choice screen, EC decided to make further adjustments over this pay-to-play setting. With the new mechanism, participation in the choice screen became free of charge. Particularly, search engines satisfying the criteria do not need to pay when appear or are selected by a user.

The influence of the revised choice screen remains unclear, as little evidence is available in such a fleeting period. However, the market response and search engines’ feedback regarding previous choice screen auction do have silver linings. It reminds us of the need to carefully consider the characteristics and properties of search before proposing new rules for this market.

First, it is critical to figure out whether the digital market resembles a natural monopoly. The property of market type greatly affects whether antitrust remedies should be applied and how to make it more efficient. Second, we shall investigate whether users of search engines are rational players, meaning that they always choose the search engine with the highest quality. The neglection of users’ behavior bias may lead us to wrong predictions and move the market in unexpected directions. Without figuring out these two dimensions, it is challenging for us to provide correct insights into how optimal regulation should be designed.

The design of the choice screen, which requires Google to change both the search engine and internet browser default options during the installation phase of Android-operated mobile devices, has explicitly sought to account for the user default effect. The pre-installation of apps creates a status quo bias: users are more likely to stick with the browser and search apps pre-installed on their devices rather than downloading and installing alternatives

Whether the platform’s users are rational or biased is crucial as it ultimately determines the effectiveness of regulations. For instance, if the users are rational in choosing search services, then the reason they cluster on Google is likely to be the superior quality of its service. In this case, a regulation mandating Google to share the data from its queries with other search engines would allow these rivals to improve their own quality and, hence, become more effective competitors. However, they will be completely ineffective if behavioral biases are the motive behind a platform’s concentration. In this case, a regulation mandating that Google shares its data with the other search engines would be completely ineffective in fostering competition in search. What is needed, instead, is a type of regulatory intervention that accounts for both behavioral biases of the platform’s users and limited information about effective alternatives to the dominant platform.

The full article can be found in the TechREG Chronicle, our monthly journal that features articles from experts on technology regulation to drive discussion and debate. To receive this publication, subscribe here.

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