EU Commission fines Google €2.42 billion for breach antitrust rules

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JAKARTA (TheInsiderStories) – The European Union (EU) Commission has fined Google Inc., for €2.42 billion (around US$2.7 billion) for breaching EU antitrust rules, said Commissioner Margrethe Vestager in a press statement.

Alphabet Inc., (GOOGL.O), Google’s parent company, said it disagreed with the decision and would consider an appeal to EU Commission. The selloff followed EU fined, make Alphabet’s stock sank 2.5 percent, to close at a six-week low of $948.09.

In Indonesia, The American multinational technology company’s unit Singapore-based Google Asia Pacific Pte. Ltd. has possible get fine fromIndonesia’s tax authority about hundred millions of U.S dollar.

The unit has reported that it gained $109.2 million in revenues from Indonesian clients throughout 2015. Based on Google Indonesia’s tax filing document for year of 2015, audited by Ernst & Young Indonesia, the company was subject to pay only Rp5.2 billion ($389,800) in income tax.

 

Furthermore, EU commission stated, Google has pledged to step up investigations into the local operations of Google after the company refused to pay the tax arrears demanded by the government.

Google has abused its market dominance by giving an illegal advantage to another Google product, its comparison shopping service.

The company must conduct within 90 days or face penalty payments of up to 5 percent of the average daily worldwide turnover of Alphabet.

“Google has come up with many innovative products and services that have made a difference to our lives. That’s a good thing. But Google’s strategy for its comparison shopping service wasn’t just about attracting customers by making its product better than those of its rivals. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results, and demoting those of competitors,” Vestager said.

“What Google has done is illegal under EU antitrust rules. It denied other companies the chance to compete on the merits and to innovate. And most importantly, it denied European consumers a genuine choice of services and the full benefits of innovation.”

Google’s strategy for its comparison shopping service

Google’s flagship product is the Google search engine, which provides search results to consumers, who pay for the service with their data. Almost 90 percent of Google’s revenues stem from adverts, such as those it shows consumers in response to a search query.

In 2004 Google entered the separate market of comparison shopping in Europe, with a product that was initially called “Froogle”, re-named “Google Product Search” in 2008 and since 2013 has been called “Google Shopping”.

It allows consumers to compare products and prices online and find deals from online retailers of all types, including online shops of manufacturers, platforms (such as Amazon and eBay), and other re-sellers.

When Google entered comparison shopping markets with Froogle, there were already a number of established players. Contemporary evidence from Google shows that the company was aware that Froogle’s market performance was relatively poor (one internal document from 2006 stated “Froogle simply doesn’t work“).

Comparison shopping services rely to a large extent on traffic to be competitive. More traffic leads to more clicks and generates revenue.

Furthermore, more traffic also attracts more retailers that want to list their products with a comparison shopping service. Given Google’s dominance in general internet search, its search engine is an important source of traffic for comparison shopping services.

From 2008, Google began to implement in European markets a fundamental change in strategy to push its comparison shopping service. This strategy relied on Google’s dominance in general internet search, instead of competition on the merits in comparison shopping markets.

As a result, Google’s comparison shopping service is much more visible to consumers in Google’s search results, whilst rival comparison shopping services are much less visible.

The evidence shows that consumers click far more often on results that are more visible, i.e. the results appearing higher up in Google’s search results. Even on a desktop, the ten highest-ranking generic search results on page 1 together generally receive approximately 95 percent of all clicks on generic search results (with the top result receiving about 35 percent of all the clicks).

It said, the first result on page 2 of Google’s generic search results receives only about 1 percent of all clicks. This cannot just be explained by the fact that the first result is more relevant, because evidence also shows that moving the first result to the third rank leads to a reduction in the number of clicks by about 50 percent.

The effects on mobile devices are even more pronounced given the much smaller screen size. This means that by giving prominent placement only to its own comparison shopping service and by demoting competitors, Google has given its own comparison shopping service a significant advantage compared to rivals.

Vestager continues, the decision concludes that Google is dominant in general internet search markets in all 31 the European Economic Area countries. It found Google to have been dominant in general internet search markets in all EEA countries since 2008, except in the Czech Republic where the Decision has established dominance since 2011.

This assessment is based on the fact that Google’s search engine has held very high market shares in all EEA countries, exceeding 90 percent in most. It has done so consistently since at least 2008, which is the period investigated by the Commission.

There are also high barriers to entry in these markets, in part because of network effects: the more consumers use a search engine, the more attractive it becomes to advertisers. The profits generated can then be used to attract even more consumers. Similarly, the data a search engine gathers about consumers can in turn be used to improve results.

Google has abused this market dominance by giving its own comparison shopping service an illegal advantage. It gave prominent placement in its search results only to its own comparison shopping service, whilst demoting rival services. It stifled competition on the merits in comparison shopping markets.

Google introduced this practice in all 13 EEA countries where Google has rolled out its comparison shopping service, starting in January 2008 in Germany and the United Kingdom. It subsequently extended the practice to France in October 2010, Italy, the Netherlands, and Spain in May 2011, the Czech Republic in February 2013 and Austria, Belgium, Denmark, Norway, Poland and Sweden in November 2013.

The effect of Google’s illegal practices

Google’s illegal practices have had a significant impact on competition between Google’s own comparison shopping service and rival services. They allowed Google’s comparison shopping service to make significant gains in traffic at the expense of its rivals and to the detriment of European consumers.

In combination with the Commission’s other findings, this shows that Google’s practices have stifled competition on the merits in comparison shopping markets, depriving European consumers of genuine choice and innovation.

 

 

At the end, the EU Commission said is also continues to examine Google’s treatment in its search results of other specialized Google search services. Today’s Decision is a precedent which establishes the framework for the assessment of the legality of this type of conduct.

At the same time, it does not replace the need for a case-specific analysis to account for the specific characteristics of each market.

(Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com)