Antitrust: Much Ado About Nothing Again

Antitrust has been in the news for years, with new headlines every month, yet Google stock keeps going up, suggesting that investors are not concerned. I dunno why people keep wasting their time with this. Wherever I see proposed/tentative antitrust action against Google, Facebook, or any other dominant tech company, there are always holes in the cases.

From the WSJ Google Charges More Than Twice Its Rivals in Ad Deals, Unredacted Suit Says

Google takes a cut of 22% to 42% of U.S. ad spending that goes through its systems, according to a newly unredacted lawsuit by state attorneys general, shedding new light on how the search giant profits from its commanding position in the internet economy.

The share the Alphabet Inc. GOOG -2.91%▲ subsidiary takes of each advertising transaction on its exchange—a marketplace for ad buyers and sellers—is typically two to four times as much as the fees charged by rival digital advertising exchanges, according to the suit, which is being led by Texas.

Yes, they charge more because they can. That’s like blaming Rolex for charging 2-4 times more on its watches compared to competitors. [1]

The suit alleges the company has deployed strategies to “lock in” publishers and advertisers and help the company’s ad-buying tools win more than 80% of auctions on its exchange, a newly revealed figure. It gives a window into Google’s overwhelming dominance of advertising, citing Google documents that say the company served 75% of all online ad impressions in the U.S. during the third quarter of 2018.

Being dominant in and of itself not blameworthy.

Smaller advertisers pay even larger fees. Transacting on a separate system called Google Display Network, they pay fees ranging from 32% to 40% to Google. The rates are in line with Google’s public statements that publishers receive 68% of revenue from AdSense, a tool to serve ads to smaller websites.

The filing alleges that Google is charging to much relative to competitors. If advertisers and publishers feel they are getting a bad deal, couldn’t they just defect to said competitors? The issue is, Google has a lot of leverage because of its size. But this is not the same as being ‘anti-competitive’, which is hard to define and why such cases tend to be major legal slogs. As discussed in The era of antitrust is over, the reason why you see so few major instances of the Sherman Act being invoked, is that it’s very time consuming and expensive, due to meeting the exceedingly high bar of proving anti-competitive behavior. The Clinton administration had the popularity and political capital to go after Microsoft, but since then the political impetus is gone.

The Apple-Google app store duopoly could be considered anti-competitive, not because they have market dominance, but because their stores serve as gatekeepers to block potential competitors that may threaten this duopoly, as apps are essential for of the digital economy. Any service that is denied the ability to list their app on either store is shut off from an essential market. But this case concerns the Google ad exchange, not the Android app store.

When the Sherman Act is invoked, the fines are typically small anyway. According to a summary of cases, the largest was a $900 million fine in 2017 against Citigroup for alleged ‘forex manipulation’. This should be no problem for Google, in which this amounts to a rounding error.

I am certain nothing will come of this but some stern words. Being ‘long’ Facebook and Google stock is effectively a bet in favor of this outcome. Even if in the unlikely event action is taken, likely Google will still prevail by working out some deal that maintains Google’s huge profitability and dominance at the cost of some trivial concessions, similar to how Microsoft was only given a slap on the wrist, and the breakup order was overturned on appeal. Microsoft was still allowed to bundle its browsers with its operating systems, nor was it broken up.

This hype over antitrust is like all the hype over the past 6 months about Fauci, the NIH, and Wuhan Lab funding. Despite endless headlines, no ‘official’ action has been taken and likely never will. Nothing will ever come of it: no indictment, arrests, and jail time (and even in the exceedingly unlikely event anything bad happens, Biden will just invoke his pardon powers). Same for stories about Hunter Biden.

How often do you see a headline along the lines of “so-and-so entity or person knew about ‘$bad_thing’ for years but did nothing.” It’s like the media is shocked that people, companies knowingly do bad things. Unlike in the movies, evil in ‘real life’ tends to prevail, either because those who care are powerless or those who have power (district attorneys, attorney generals, feds, prosecutors, judges, etc.) do not care.

It’s not like the media wants to cover for the left, as the common conservative narrative goes. These stories are everywhere, and the knowledge is public, as a simple Google search shows. Forums, Reddit, 4han, Twitter, etc. is full of discussion implicating Fauci and Biden. For example, even the NYTs is talking about inflation and shortages, so it sorta dents the narrative of how the media is covering for Biden. And here’s a story from Yahoo about one of Biden’s many fibs. And from Vanity Fair, In Major Shift, NIH Admits Funding Risky Virus Research in Wuhan. By now everything is public knowledge. There is no coverup (or if there is a coverup, that is not the problem); rather, the problem is more to do with inaction by people who have power. The New York Times and the Washington Post, in part by being private media companies that depend on ad revenue, are more than happy to report negative stories about Biden and Fauci for page views and ad revenue, or for fear of losing traffic to sites that do report negative stories.

To bring this back to Google, Google stock could surge on such an outcome. A slap on the wrist punishment absolves it of potentially worse penalties, and thus this cloud of uncertainty is lifted. This is similar to how healthcare and insurance stocks surged in 2012-2013 after Obamacare, because the the market was relived that it was not as bad as originally feared by the overrated experts, who predicted Obamacare would hurt profits for healthcare stocks, which it did not.

[1] There are hundreds of watch brands to choose from. Same for almost any other consumer item, be it food, automobiles, appliances, TVs, laptops, tobacco products, liquor, etc. But very few social media companies, search engines, or online ad platforms. Even if there are alternatives to Google, Apple, or Facebook, they tend to be much worse, such as having fewer features or smaller reach (due to network effects). The Apple app store is valuable because that is where everyone is, same for Facebook and Google. Just replicating the functionally of Facebook would be useless without also importing Facebook’s billions of users. However, such dominance and scarcity of alternatives in and of itself likely does not meet the high bar of being anti-competitive.