The Role of Switching Costs in Antitrust Analysis: a Comparison of Microsoft and Google

Recently there has been a chorus of competition complaints asserting that Google's conduct and position today is parallel to Microsoft's position in the “Microsoft case,” the antitrust case brought by the Department of Justice in 1998. Any monopolization case against Google Search would have to be very different from the Microsoft browser case, because the cost for a user switching from Google Search is much lower than was the cost in the 1990s (or today) of switching away from the Microsoft operating system. It would likewise need to be different because Google has not attempted to manipulate the cost of a user switching away from Google Search, at least not to a significant degree. Low switching costs should and likely will have important implications for antitrust analysis of Google. * Richard Jennings, Endowed Chair, Professor of Economics and Professor of Law, University of California, Berkeley; Research Associate, National Bureau of Economic Research. ** Professor Emeritus, Business & Public Policy, Haas School of Business at the University of California, Berkeley. The authors are grateful to Google, Inc. for financial support of this research, and to Mehmet Seflek, Paul Rotilie, and Adam Roberts for excellent research assistance. The authors also appreciatively acknowledge the helpful comments of Matthew Bye, Jonathan Jacobson, Michael Salinger, Scott Sher, and Hal Varian. The opinions in this paper are our own, and Google may have different opinions. 1 Edlin and Harris: THE ROLE OF SWITCHING COSTS IN ANTITRUST ANALYSIS Published by Yale Law School Legal Scholarship Repository, 2013 THE ROLE OF SWITCHING COSTS IN ANTITRUST ANALYSIS: A COMPARISON OF MICROSOFT AND GOOGLE 170 TABLE OF CONTENTS INTRODUCTION .............................................................................171 I. THE ECONOMICS OF SWITCHING COSTS ..................................176 A. Switching Costs and Competitive Analysis ..................... 176 B. Types of Switching Costs ................................................ 178 II. THE CENTRALITY OF HIGH SWITCHING COSTS, INHERENT AND STRATEGIC, TO THE MICROSOFT BROWSER CASE AND OTHER ANTITRUST CASES.........................................184 A. Switching Costs were Key to the Government Showing that Microsoft had Monopoly Power ........................................... 185 B. Microsoft Acted Anticompetitively to Increase, Maintain, and Exploit High Switching Costs ........................................ 186 C. Role of Switching Costs Elsewhere in Antitrust Case Law 188 1. Role of Switching Costs in Narrowing Market Definition ...................................................................189 2. Role of Switching Costs in Assessing Market Power .190 3. Role of Switching Costs in Exclusionary Conduct .....190 III. A COMPARISON OF SWITCHING COSTS: MICROSOFT WINDOWS VS. GOOGLE SEARCH .......................................192 A. Comparison by Types of Switching Costs ....................... 193 B. Evidence of Switching Across Generalized Search Engines (GSEs) ................................................................................... 198 C. Alternatives to Generalized Search Engines for Searching 203 1. Evidence on Switching Between Vertical Search and Generalized search ....................................................204 2. Evidence on Switching Between GSEs and Mobile Apps............................................................................206 3. Evidence on Switching Between Social Media Search and Generalized Search .............................................209 4. Evidence on Arrival Rates at Websites Directly or Indirectly, Not From a GSE .......................................210 5. Evidence on Competition Between Emerging Technologies and Generalized Search.......................210 SUMMARY AND CONCLUSION .......................................................212 2 Yale Journal of Law and Technology, Vol. 15 [2013], Iss. 2, Art. 4 http://digitalcommons.law.yale.edu/yjolt/vol15/iss2/4 THE ROLE OF SWITCHING COSTS IN ANTITRUST ANALYSIS: A COMPARISON OF MICROSOFT AND GOOGLE