Geoffrey Manne’s Competition Anathema

Geoffrey Manne recently published a blog post defending Google’s abusive practices in the mobile space. The post is a mixture of mis-direction and inaccuracy that simply doesn’t hold up for anyone who scratches the surface. In the end, Manne’s post actually reveals why Google’s Android practices require in-depth investigation.

Paid by Google

As many of the ChillinCompetition readers may not be aware, Geoffrey Manne and his organization have long received funding from Google. He clearly forgot to disclose the relationship in his post. In fact, Manne is the executive director of the International Center for Law and Economics, an organization that lists a total of two employees including Manne, and is Google-funded. Nonetheless, Manne feels free to criticize the work of Harvard Business School Associate Professor Ben Edelman for being unduly biased, even though Prof Edelman clearly does disclose his relationships, background and interests in his relevant work and on his website.

Blatant Errors & Contradictions

One reason it’s difficult to trust Manne’s arguments is that his post is rife with blatant errors and contradictions.

He describes the European Commission’s investigation into Google’s search practices as having ‘failed’. On the contrary, the EC has preliminarily found Google to be dominant, to have abused that dominant position, and to have failed to come up with solutions to remedy those harms. The EC’s case is very much alive to any observer; recent nomination hearings of the next Commission show that these concerns have been heard loud and clear and have been understood.

Manne also suggests all concerns about Google originate from a single company, despite a growing wave of civil complainants, European governments and others that believe that Google acts unlawfully in a range of areas. Manne’s post specifically centers on an ongoing investigation into Google’s abusive Android practices, and a story he cites refers to a “growing chorus of complaints” that could be addressed by the investigation. In a similar contradiction, Manne’s post suggests that the EC’s Android investigation is a recent, last-ditch development, but he links to a piece revealing the EC has long planned an investigation into Android and that it has been actively looking into these issues since 2013.

Imperfect Comparisons

Part of Manne’s post is spent comparing the Android investigation in Europe with previous investigations into Google in places like the United States and Korea, suggesting Google’s Android issues have already been examined and dismissed elsewhere.

In the U.S., the FTC did not examine Google’s conduct relating to exclusionary terms in its MADAs and abuse of the Open Handset Alliance. The FTC’s announcement concluding its investigation made no mention that it found Google’s Android distribution practices to be in the clear – not in its official statements, the press release, the press conference, or the consent order Google signed – so one should not be comparing the FTC investigation to Europe’s Android investigation in the first place.

Manne also tries to compare an investigation in Korea to the one in Europe. At least the Korean investigation was about Android; however, the market situation was quite different. Korea is one of the few markets where Google is not dominant in search and related services, so naturally concerns over tying these services to Android would not exist there as they do in Europe.

Forking Isn’t Easy

One of Manne’s two core legal arguments, resting in part on discussion of a white paper written by yet another Google-paid academic, Professor Torsten Koerber, is that forking proves hardware manufacturers can easily manipulate Android and take or leave its applications and services.

Manne points to a report from ABI research claiming that globally “20 percent of smartphones shipped between May and July 2014 were based on a ‘Google-less’ version of the Android OS.” He cites this report with the subtle suggestion that Google is okay with this growth in forked devices. But Google’s efforts to limit forking are well documented. Forking occurs despite Google, not because of it, and the company has become increasingly aggressive in trying to stop it. What’s more, the ABI report points out that the world’s devices running on forked versions of Android are predominantly in Asia, which makes the point irrelevant for the European conversation.

Manne puts forward Amazon Kindle as his feature example of forking’s success. But it took Amazon thousands of software engineers and millions of dollars to build a consumer-ready device, compensating for the disadvantages that come with the decision not to take Google’s apps. The reason for this, and a detail Manne omits, is that Google requires device manufacturers in its Open Handset Alliance to pledge to an all or nothing commitment to Google Android. In fact, many of Google’s restrictions are designed to ensure that another Amazon incident doesn’t emerge and, if it does, to keep its market penetration tiny. Amazon admits that it sells Kindles at cost, even with the extra work, and its app store has 146,000 apps, far fewer than in the Google Play Store.

Dominant is Different

Manne’s second legal argument is that it’s okay for Google to operate in a closed manner because “both Apple iOS and Windows Phone tightly control the ability to use non-default apps.” This argument begs the question, “If Manne doesn’t have a basic understanding of European competition rules, why should he be featured on the ChillingCompetition blog?” For EU competition rules and special obligations to apply, a company must be dominant. With a market share of nearly 70% in most of Europe, Android is dominant. Both Apple iOS and Windows Phone are not.

Putting Things in Context

Stepping back, it’s important that all of Manne’s arguments be viewed in an economic context. It is not just what, on the face of Google’s Android agreements, device makers can do. Rather, this issue is about what they will do in the light of Google’s overwhelming dominance in so many relevant areas. Since much of the answer lies in Google contracts that are proprietary and confidential, it is inevitable that the truth can only be established by using formal powers of investigation. Presumably that investigation should also focus on Manne’s admission that Google’s engages in cross-subsidization and predatory pricing with respect to Google’s apps suites.

Manne closes by chiding EU regulators to “take note.” The good news is that they are indeed taking note of the long history of Google’s anti-competitive behavior and of Google’s unwillingness to comply with the law.  A full formal investigation and effective remedies are profoundly necessary to stop Google from inflicting the same permanent harm on the mobile space that it has inflicted on search.