Does Google Have Too Much Market Power?

A strong majority of each panel agreed that Google’s dominance of the market for internet search arose mainly from a combination of economies of scale and a quality algorithm.

Nicholas Bloom of Stanford said, “Google’s search engine has been far better from the outset—this alone can explain why it dominated. It is simply a better search engine.”

Franklin Allen of Imperial College London added, “They do have a good algorithm and this is a big part of their success, but increasing returns to scale due to network effects are large.” And Daron Acemoglu of MIT noted: “Quality of algorithm likely played a role early on, but now it’s mostly network effects—dominance breeds dominance.”

Robert Hall of Stanford introduced an additional factor behind Google’s dominance: “Not to mention good timing.” David Autor of MIT commented: “If Google hadn’t invented page rank, someone else would have. Google benefited from getting there first with a good idea.”

Pete Klenow of Stanford drew attention to background information on Google’s cluster architecture. And John Van Reenen of MIT pointed to “General findings in literature including our work on superstar firms.”

On the question of whether Google’s dominance and current operating practices could have a substantial negative effect on social welfare in the long run, more experts agreed than disagreed, but there was substantial uncertainty.

Among those who agreed with the statement, some referred to how potential negative effects might arise. Barry Eichengreen of the University of California at Berkeley said, “Overwhelming market dominance creating formidable barriers to entry are not good.” Bengt Holmstrom of MIT explained: “Difficult to assess. De facto monopoly due to superior algorithm. Worried about limited contestability and biased ad rankings.” Franklin Allen added, “As with many monopolies, they will have the wrong incentives with regard to pricing of advertising and to innovation.”

Others develop the theme of the possible impact of market dominance on a firm’s conduct. Christopher Pissarides of London School of Economics noted simply: “Power corrupts.” Larry Samuelson of Yale said, “Innovation brought Google to a dominant position, but Google bars no holds in preserving that position, with adverse consequences.”

Daron Acemoglu went further: “It walks, swims, and quacks like a duck, it’s probably a duck. It looks, behaves, and dominates like a monopoly, it’ll probably harm welfare.” And David Autor warned, “I fear Google is becoming the new *old* Microsoft, before the antitrust case. They may not be doing substantial harm now—but they could.” Pete Klenow linked to a 2010 study asking exactly that question: Is Google the next Microsoft?

A number of panelists picked up on the word “could.” Pinelopi Goldberg of Yale stated, “They COULD; this does not mean they WILL. Regulators should be vigilant and scrutinize practices going forward.” Robert Shimer of the University of Chicago added, “The key word in the question is ‘could.’ It could also have a substantial positive effect, as it has in the past.”

Anil Kashyap of Chicago Booth pointed to a mechanism by which negative effects could happen: a “kill zone” in the space of startups, as described by venture capitalists, where the prospect of acquisition by an incumbent platform undermines early adoption and makes new entrants not worth funding. Kjetil Storesletten of the University of Oslo worried about the effects on other industries: “Indirect costs: dominant tech giants soak up the advertisement revenue the free press/media depends on. This risks crowding out the press.”

Karl Whelan of University College Dublin expressed, “Weak agreement, but we’ve seen large tech companies rise and fall. This could be the ‘peak Google’ era and something else replaces it.” But Peter Neary of Oxford, who strongly agreed with the statement, responded: “A classic case of natural monopoly. Unfortunately, it is (almost) at the global level so countervailing action would have to be global too.”

Among the sizeable minority of panelists who said that they were uncertain, some find the question insufficiently specific. Jonathan Levin of Stanford replied: “Struggling with question framing. Some practices deserve scrutiny. On net, however, its products and services create enormous value.”

Kenneth Judd of Stanford said, “Fuzzy answer to a fuzzy question. ‘Could’ have negative impact, yes. But current operations include creation and sharing of powerful tools.” Pol Antras of Harvard added, “Ambiguous language here. Google will not have decreased steady-state welfare; but relative to a counterfactual with more competition, it may.”

Others were unsure that they knew enough for anything more than a response of “uncertain.” Christian Leuz of Chicago Booth noted: “Given Google’s dominance in the market for search, there clearly is potential for such harm. Don’t know enough about its practices to answer.” Darrell Duffie of Stanford commented: “Depends on how Google exercises its market power, and on the quality of potentially superior entrants. Those are beyond my expertise.”

Patrick Honohan of Trinity College Dublin, who voted “no opinion,” responded: “Future dynamics of the sector too uncertain for me to assess.” And Richard Schmalensee of MIT said, “I don’t know enough about its current operating practices to be very confident.”

Among those who disagreed or strongly disagreed with the statement, Robert Hall stated, “I take it that would mean that regulators are currently passing up a constructive intervention, which is not the case.” And Nicholas Bloom concluded: “Search is a natural monopoly. If better searches exist they will win—Google beat out Alta Vista on product quality.”