Googles Monopoly in the 21st Century - Term Paper Example

Google Monopoly

Michael A. Norwood Jr.

BUS670: Legal Environment

Instructor: Janet Fiorentino

31 July 2017

Google Monopoly

Introduction

The business environment today is quite competitive. As such, firms seek to exploit all legal channels and options to gain a competitive advantage in the market. Some of these efforts lead to the formation of monopolies. The concept or phenomena of monopoly has been contentious in the business environment for a long time. Although it is not illegal to become a monopoly, they (monopoly firms) still pose ethical challenges. A firm becomes a monopoly when it has complete dominance and control of the market in which it operates. It uses its dominance to set and influence market trends which give it an unfair advantage over other organizations or businesses in the market. Google has rapidly grown over the last decade to become a monopoly. The Federal Trade commission (2013) states that Google posts approximately $38 billion annually as revenue. It also has nearly 32,000 employees. Google has extensively developed its web searching tools thereby controlling nearly 98% of mobile internet searches. This enables it to push the search results of its products and services on top of its competitors. Therefore, the paper will examine and explore Google’s monopoly in the 21st century, and the laws governing monopolies and unfair business practices. Further, the phenomenon (Google’s monopoly) will be evaluated under the utilitarianism and contract theories.

Business situation that presents a legal and ethical issue

Clinton (2015) opined that “large corporations are concentrating control over markets” and “using their power to raise prices, limit choices of consumers, lower wages for workers, and hold back competition from small businesses. “This implies that monopolies in the contemporary world are presenting or creating both legal and ethical issues. Google controls about 98% of the mobile search market and 82% of the global search market thereby making it a monopoly (Katz, 2012; Worstall, 2017; and Suarez-Villa, 2014). This creates a business situation that presents both a legal and ethical issue. Katz (2012) argues that “When one company controls nearly 82% of the global search market and 98% of the mobile search market, it's time for serious changes.” Google has enjoyed a monopoly for over a decade. Its search engine is the most/widely used across the globe. This power has made Google to post high or excellent annual revenues that are more than all the combined economies of 28 of the world’s poorest nations (Katz, 2012).

Most organisations or leaders dream of finding themselves in the shoes of Google “massive IPO, dominance in the marketplace, and a blank slate from policy makers to do practically anything they please” (Katz, 2012). Nonetheless, this position exposes the firm to claims or accusations of unethical practises. Worstall (2017) believes that it is not wrong or illegal for a firm to become a monopoly. Governments do not regulate firms simply because they are monopolies. Government regulation of monopolies emanates from the actions the monopolies are conducting. Some of the actions that warrant regulation include situations where the monopolies are trying to exploit or exercise their monopoly power or trying to influence the market since they possess market dominance power. The unethical practices make it nearly impossible for other firms in the industry to compete with Google.

The Federal Trade Commission report states that “Google has harmed consumers and competitors” since it dominates the market in addition to influencing the internet. Google has threatened various firms in the past like Amazon after they complained that Google used their content. Google informed them that it will remove the firms from its search rankings therefore killing them instantly. One of the most common cases of Google giving a business ‘internet death’ involves Tim Carter’s AsktheBuilder.com. Before falling out with Google, Tim Carter (a former Google employee) used to generate nearly $1400 per day as ad revenue from Google Adsense. Google even acknowledged and used Tim Carter’s business as an example of its Adsense program. Tim Carter went ahead to be a staunch advocate for Google. He even testified before the US Congress and defended Google on antitrust accusations the firm was facing. Google commenced its ‘Panda’ program in 2011 to exclude all sites that were viewed as junk from its research results. Tim carter’s business was viewed as junk by Google and removed from its research results. The number of visitors to Tim carter’s web business plummeted to only 8000 a day up from 60,000 visitors a day. Also, the revenue dropped to just $70 per day (Shankland, 2012). After his tribulations with Google, Tim carter advised entrepreneurs that “Anybody who builds a business based on the whims of a search engine’s algorithms- that’s a foolish thing to do” (Shankland, 2012). Currently, Tim Carter is supporting other firms like Microsoft who are against Google’s monopoly and unfair business practices.

Also, Google has been accused by its competitors for using its monopolistic advertising powers to side-line competitors. It thus removes a majority of its competitors from its top search results and instead pushes its products and services into the top of a user’s search results. Further, Google skews the advertisement prices in situations where it wants its products to occupy the top position in the search results by increasing the advertising costs for its competitors. As a result, it unfairly stifles competition from other businesses. By stifling other businesses and pushing its products and services to the top of search results, Google reduces or limits the choice of consumers. Consumers in most cases do not scroll down the search results page. Rather, they focus on the top search results. Since Google is at the top of the search results, consumers get a limited choice of products and services.

An investigation by the Federal Trade Commission in 2012 found out that Google had unfairly used its monopoly power and subsequently employed anticompetitive tactics to harm its competitors and other internet users (Mullins, Winkler & Kendall, 2015). The report recommended that the FTC should bring a lawsuit against Google to challenge its search bias, Ad campaign practices, and vertical search. Google agreed to make concessions with the FTC and hence lifted some restrictions on its AdWords API to allow other firms to optimise their advertisements. Additionally, Google allowed firms (websites) to opt out of its vertical search. Therefore, the firms had an option or power to decide whether to be included in Google’s vertical search like Google news. Nonetheless, opting out of the vertical searches would mean that the firms would not be included in any of Google’s search results. Firms like Yelp were therefore forced to allow Google to continue using their data or risk being given an ‘internet death’.

The FTC’s investigation of Google’s search bias indicated that Google abused its monopoly power by promoting its content and pushing it to the top of the search results page in cases where it (Google) deemed its content to be ‘relevant’. This was done at the expense of its competitors who would then appear at a lower position in the search results compared to Google (Mullins, Winkler & Kendall, 2015). Google responded to the FTC’s claims and findings that any changes it makes to its search engine are meant to benefit the consumer and not itself. The firm argued that its primary responsibility is towards providing the best search results for the consumer even if the search algorithm is skewed towards its competitors. This argument makes Google to be the sole and only determiner of the results it displays to its users. It thus tends to favour its products and list them above its competitors’ products and services. Despite the search bias findings being unethical, the Federal Trade Commission did not recommend any action towards Google in its 2012 report (Mullins, Winkler & Kendall, 2015). The Federal Trade Commission (2013) argued that “the FTC’s mission is to protect competition, and not individual competitors. The evidence did not demonstrate that Google’s actions in this area stifled competition in violation of U.S law.”

Goggle’s tribulations extend to the European union where the European Union’s antitrust regulator fined Google a record $ 2.72 billion for its unethical and unfair business practices (Drozdiak & Schechner, 2017). The regulator argued that Google was guilty of search bias. Google tended to “stack the deck in favour of its own comparison-shopping service” (Drozdiak & Schechner, 2017). The regulator viewed the practice and method as being unfair and abuse. Additionally, Google’s search bias business practises were illegal under the EU’s antitrust law. The regulator recommended or suggested that Google should treat its competitors equally and not discriminate against them by listing their products and services lower in the search results compared to its products. Further, the European Union regulator has previously investigated Google on accusations that it is only exposing android device users to its own applications and services hence killing competition.

Two ethical theories under which Google’s Monopoly will be examined

Ethical theory acts as the foundation for viewing behavior and concepts as either right or wrong. One of the basic ethical theories is utilitarianism. It infers that actions are judged on their effects. As such, any action is right if it enhances or promotes happiness and wrong if negatively affects others (Willis, 2014). It is among the most popular and ancient consequentialism ethical theories. The theory (just like other consequentialism theories) is founded on the notion that an action is right or wrong solely based on the consequences of the act. Proponents and advocates of utilitarianism believe that ethics play a major role in making and enhancing the goodness or quality of life and situations. Therefore, businesses and individuals must strive to enhance and promote happiness while reducing or eliminating unhappiness and pain. Hence, utilitarians argue that anything that has a positive impact on the society is ethical and morally right.

Jeremy Bentham and John Stuart Mill are the founders and greatest contributors of utilitarianism theory. The action should not only promote the happiness of the performer but also the happiness of others and the society in general (Franzcp, 2007). Google enjoys monopoly power in the Information technology Industry. As such, its actions have an impact on other business, competitors and consumers or users. Despite the firm (Google) stating that it has a responsibility to maximize and enhance a user’s experience, the firm uses unfair tactics to stay ahead of its competitors in the industry. These practices do not promote happiness and the well-being of the society, but rather lead to unhappiness and pain. For example, as highlighted above, Google listed Tim Carter’s business website as junk thereby ruining his business leading to pain and unhappiness. Furthermore, Google uses its search engine monopoly to give its products and services an unfair advantage over its competitors. It often displays its products as the first items that appear during a search. The European regulatory body found Google guilty of search bais and fined it heavily. In addition, Google’s search bias limits consumers to mostly Google products and services even though there are other quality products in the market. For instance, Google pushes its applications on users of android devices and limits their choice. From the perspective of utilitarianism theory and philosophy, the consequences of Google’s actions and practices lead to unhappiness. This makes them to be unethical and morally wrong.

Contract theory is based on the ethical thinking or agreements between parties (Bolton & Dewatripont, 2005). Thomas Hobbes posits that men (organizations) in their natural state are brutal and full of anarchy. However, they are rational. As such, they are able to submit to a higher authority in order to live in a civil society. Therefore, organizations must be ready and willing to renounce some of the rights that they had in their natural state in order to live in a civil society. They thus enter into contracts with other organizations in addition to submitting to the authorities. The government establishes rules and regulations that guide how firms operate and compete in the business environment. This ensures that the firms compete fairly. However, Google’s monopoly power enables it to manipulate its search results thereby gaining a competitive advantage over its competitors. These unethical practices contravene the social contract theory and the regulations and rules the firm is supposed to follow in order to allow fair competition. The social Contract Theory states that “morality consists in the set of rules governing behavior that rational people would accept, on the condition that others accept them as well.”

Laws governing monopolies and unfair business practices

Antitrust laws in the US regulate the business environment and encourage fair and free competition. Unfair practices such as trusts and monopoly arrangements restrict fair and free competition since the monopolies have the power to artificially manipulate market forces. The Sherman Antitrust act of 1890 and the Clayton Act of 1914 play a critical role in eliminating bad business practices (Martin, 2016; Act, 1914; and Millon, 1987).

The Sherman antitrust act makes bans any “contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states or with foreign nations” (Seaquist, 2012). It was passed by congress in 1980 in an attempt to rein in cartels and monopoly businesses that were advocating or perpetuating oppressive business practices. The law was named after John Sherman who introduced it to the senate and was subsequently signed by President Benjamin Harrison on 1890 into law. Section 2 of the Sherman antitrust act 1890 states that the act of monopolisation is illegal in the United States of America. Monopolisation is not based on business size, but on the actions of a business. A small business can have the power to influence and manipulate the market. Therefore, it is illegal for firms such as Google to monopolise the search engine results. The Sherman anti trust act 1890 agrees with or is in line with the European Union’s Competition Law on monopolisation. The EU found Google guilty of search bias and monopolisation of its power and consequently fined it nearly $2,7 billion (Drozdiak & Schechner, 2017).

The Clayton anti trust act was formed to supplement the Sherman act. Organisations and businesses realised that they could merge into one corporation and hence enjoy the powers of a monopoly. The clayton antitrust act is meant to arrest anticompetitive behaviours and practices in their early stages. Some of the major principles tackled by the Clayton anti trust act include price discrimination, exclusive dealings, tying, and mergers and acquisitions. Hubbard (2017) wrote that “powerful tech platforms have platform privileged- the incentive and ability to prioritise their own products and services.” The Clayton antitrust act stops firms from misusing these privilege.

Conclusion

Google is an IT firm that enjoys monopoly power in the IT industry. It controls nearly 98% of mobile internet searches and 82% of the global internet searches. This market dominance enables it to engage in practices that are prohibited under the Sherman antitrust act and clayton antitrust act. Additionally, the unfair business practices contravene both social contract theory and utilitarianism theory. The firm has been found by the FTC to manipulate its search results in favour of its own. It lists its search results on top of its competitors. All these practices create an unfair and unfavourable competitive business environment.