INDIA IPPON DESU
Sunday, August 25, 2024
Friday, August 23, 2024
John Cochrane :Price gouging
Kamala Harris’ policy speech on Friday seems to have ignited a debate about “price gouging,” and what the government should do about it.
We should praise price-gouging. Yes, pass a new federal law, one that overrides the many state laws against price gouging.
What is price gouging and how could I possibly say that? The classic case of “price gouging” happens in a natural disaster or pandemic. A hurricane is coming, people run down to hardwares stores and clean out the 4’x8’ plywood to board up their windows. Stores raise their prices, people who have them sell at high prices to those that don’t. After the storm, gas trucks can’t get in for a few days. Gas stations raise prices to $10 per gallon. In the pandemic, people got worried about toilet paper and went out to buy, cleaning out shelves. Stores that raised prices were accused of “gouging.”
Price gouging is fundamentally different from monopoly pricing, collusion, or price-fixing. Price gouging happens in perfectly competitive markets. There suddenly isn’t enough to go around, either from a surge in demand or a contraction in supply. Prices rise sharply above what people are used to paying. Those that have inventories, bought when prices were lower, can turn around and make a temporary profit. VP Harris calls for a new law against “gouging,” because price fixing is already illegal, and it’s abundantly clear grocery stores are not doing it.
Price gouging is wonderful for all the reasons that letting supply equals demand is wonderful. When there is a limited supply, then a sharply higher price directs that supply to those who really need it. It’s day 2 after the hurricane. Who really needs gas? An ambulance, police, or fire truck? A handicapped person, needing to get to a doctor across town? Or someone who could bike, take public transit, or walk with just a little effort to go see a friend?
Hoarding goes with price controls, anticipated empty shelves. Why did people buy tons of toilet paper in the pandemic? They were worried about not being able to get it in the future. If the stores had not been worried about price-gouging, they would have raised the prices a lot more, and people with that idea would have gotten the message, don’t bother to stock up now — and if you really need it, there will always be some in the store later.
Laws limiting price gouging also reduce supply. If gas goes to $10 per gallon, there is a huge incentive for anyone to has a gas truck to fire it up, buy some gas out in the sticks, bring it in and sell it to local gas stations. If you can’t sell it for a good price, and the gas station can’t recoup that price, it doesn’t happen.
Supplies interact. A truck bringing in food really should get some of the available gas. But if a price-gouging limit on gas means that truck can’t get gas, then it can’t bring in food either. A price-gouging limit on food means the truck can’t afford the gas.
Inventory is a great source of supply. If you run a Home Depot in Florida, how many 4’x8’ sheets of plywood do you keep around? Well, if you’re allowed to sell them for $100 each when the next hurricane is coming, a lot. If you must charge only the regular price until the shelves empty out, then not so much. Inventory is expensive.
“Windfall” profits belong in the pantheon of saints along with price-gouging. In competitive industries, that’s what encourages people to enter and offer new supply.
Price gouging directs scarce supply to the people who really need it, encourages new supply to come in, encourages holding stockpiles for a rainy day, encourages efficient use of stockpiles we have sitting around, and encourages people to substitute for less scarce goods when they can.
Anti-price gouging efforts also target resellers. Suppose you have 20 4’x8’ plywood sheets in your basement, waiting for that big remodel. In the day before the hurricane, put them on eBay, or just outside the front of the garage, for $100 each. That way someone else gets to save their house. Not if the cops are going to come arrest you for it.
But whatabout people who can’t “afford” $10 gas and just have to get, say, to work? Rule number one of economics is, don’t distort prices in order to transfer income. First, take a breath. In the big scheme of things, even a month of having to pay $10 for gas is not a huge change in the distribution of lifetime resources available to people. “Afford” is a squishy concept. You say you can’t afford $100 to fill your tank. But if I offer to sell you a Porsche for $100 you might suddenly be able to “afford” it.
But more deeply, if distributional consequences of a shock are important, then hand out cash. So long as everyone faces the same prices. Give everyone $100 to “pay for gas.” But let them keep the $100 or spend it on something else if they look at the $10 price of gas and decide it’s worth inconvenient substitutes like car pooling, public transit, bicycles, nor not going, and using the money on something else instead.
This is, mostly, what our government did during covid. There was a lot of noise about price gouging then too, but by and large the government just handed out checks so everyone could pay higher prices. (With the exception of rental housing.) We got inflation, but we did not get the devastation that would have been caused by price controls and rationing.
Yes, rationing. Nobody likes “price gouging,” but choices are always between alternatives. How else but higher prices are we going to decide who gets the short supply? The alternative to rationing by price is rationing by waiting in line, or by political preference. Or by who you know.
Paying higher prices is a reduction in your real income, and nobody likes that. But with less to go around, our collective real income is lower, no matter what the government does about it. The government can only transfer resources, not create them. And all the fixes to price gouging make the shortage worse, by discouraging people to cut back on demand or bring in new supplies.
Yet the cultural and moral disapproval of price gouging is strong. Going back thousands of years, people (and theologians) have felt that charging more than whatever they had gotten accustomed to is immoral, especially if the merchant happened to have an inventory purchased in an earlier time. This “just price” moral feeling surely motivates a lot of the anti price-gouging campaign. Economics has only understood how virtuous price gouging is in the last 250 years.
Indeed, companies are very reluctant to price-gouge. Costco let the shelves run out of toilet paper rather than raise pries. Other stores rationed: you can only have 4 rolls — no matter if the cupboard is bare and you have a house of 8 people with diarrhea or you’re just stocking up your summer house just in case. Their reluctance goes way beyond laws. To some extent they are afraid of being housed by politicians, short of actual legal trouble. But price gouging is terrible PR. And to some extent for good reasons. Stores want a reputation for buying cheaply and passing on the low cost to the customer.
As much as the US is the land of free markets — an it is, culturally, compared to other places — we have a ways to go in our cultural acceptance of market behavior. It should be, “you’re free to charge what you want for your property, and I’m free to not buy. Everybody stop whining.” It is not.
Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.
This cultural and moral disapproval came home to me strongly about 25 years ago. We were driving from Chicago to Boston in our minivan, with 4 young children, dog, and my mother. We got to upstate NY, and needed to stop for the night. This was before cell phones and the internet, so the common thing to do was just pull of at a big freeway intersection, marked food, phone, gas, lodging, and see what’s available. Nothing. We tried hotel after hotel. We asked them to call around. Nothing. It turns out this was the weekend of Woodstock II. As the evening wore on, the children were turning in to pumpkins. Finally we found a seedy Super-8 motel that had 2 rooms left, for $400. This was back when Super-8 motel rooms were about $50 at most. I said immediately “Thank you, we’ll take them!” My mom was furious. “How dare he charge so much!” I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.”
It is surely morally worthy to give what you have to your neighbors in time of need, especially the less fortunate. But we should not demand gifts. And appropriation of property by threat of force, turning off the best mechanism we know for alleviating scarcity, does not follow. Moral feelings are a terrible guide for laws
Most politicians just supply what people demand. (A very few lead.) If the culture disapproves, they follow. Supply and demand, cause and effect, logic, evidence and experience be damned.
We should praise price-gouging. Yes, pass a new federal law, one that overrides the many state laws against price gouging.
What is price gouging and how could I possibly say that? The classic case of “price gouging” happens in a natural disaster or pandemic. A hurricane is coming, people run down to hardwares stores and clean out the 4’x8’ plywood to board up their windows. Stores raise their prices, people who have them sell at high prices to those that don’t. After the storm, gas trucks can’t get in for a few days. Gas stations raise prices to $10 per gallon. In the pandemic, people got worried about toilet paper and went out to buy, cleaning out shelves. Stores that raised prices were accused of “gouging.”
Price gouging is fundamentally different from monopoly pricing, collusion, or price-fixing. Price gouging happens in perfectly competitive markets. There suddenly isn’t enough to go around, either from a surge in demand or a contraction in supply. Prices rise sharply above what people are used to paying. Those that have inventories, bought when prices were lower, can turn around and make a temporary profit. VP Harris calls for a new law against “gouging,” because price fixing is already illegal, and it’s abundantly clear grocery stores are not doing it.
Price gouging is wonderful for all the reasons that letting supply equals demand is wonderful. When there is a limited supply, then a sharply higher price directs that supply to those who really need it. It’s day 2 after the hurricane. Who really needs gas? An ambulance, police, or fire truck? A handicapped person, needing to get to a doctor across town? Or someone who could bike, take public transit, or walk with just a little effort to go see a friend?
Hoarding goes with price controls, anticipated empty shelves. Why did people buy tons of toilet paper in the pandemic? They were worried about not being able to get it in the future. If the stores had not been worried about price-gouging, they would have raised the prices a lot more, and people with that idea would have gotten the message, don’t bother to stock up now — and if you really need it, there will always be some in the store later.
Laws limiting price gouging also reduce supply. If gas goes to $10 per gallon, there is a huge incentive for anyone to has a gas truck to fire it up, buy some gas out in the sticks, bring it in and sell it to local gas stations. If you can’t sell it for a good price, and the gas station can’t recoup that price, it doesn’t happen.
Supplies interact. A truck bringing in food really should get some of the available gas. But if a price-gouging limit on gas means that truck can’t get gas, then it can’t bring in food either. A price-gouging limit on food means the truck can’t afford the gas.
Inventory is a great source of supply. If you run a Home Depot in Florida, how many 4’x8’ sheets of plywood do you keep around? Well, if you’re allowed to sell them for $100 each when the next hurricane is coming, a lot. If you must charge only the regular price until the shelves empty out, then not so much. Inventory is expensive.
“Windfall” profits belong in the pantheon of saints along with price-gouging. In competitive industries, that’s what encourages people to enter and offer new supply.
Price gouging directs scarce supply to the people who really need it, encourages new supply to come in, encourages holding stockpiles for a rainy day, encourages efficient use of stockpiles we have sitting around, and encourages people to substitute for less scarce goods when they can.
Anti-price gouging efforts also target resellers. Suppose you have 20 4’x8’ plywood sheets in your basement, waiting for that big remodel. In the day before the hurricane, put them on eBay, or just outside the front of the garage, for $100 each. That way someone else gets to save their house. Not if the cops are going to come arrest you for it.
But whatabout people who can’t “afford” $10 gas and just have to get, say, to work? Rule number one of economics is, don’t distort prices in order to transfer income. First, take a breath. In the big scheme of things, even a month of having to pay $10 for gas is not a huge change in the distribution of lifetime resources available to people. “Afford” is a squishy concept. You say you can’t afford $100 to fill your tank. But if I offer to sell you a Porsche for $100 you might suddenly be able to “afford” it.
But more deeply, if distributional consequences of a shock are important, then hand out cash. So long as everyone faces the same prices. Give everyone $100 to “pay for gas.” But let them keep the $100 or spend it on something else if they look at the $10 price of gas and decide it’s worth inconvenient substitutes like car pooling, public transit, bicycles, nor not going, and using the money on something else instead.
This is, mostly, what our government did during covid. There was a lot of noise about price gouging then too, but by and large the government just handed out checks so everyone could pay higher prices. (With the exception of rental housing.) We got inflation, but we did not get the devastation that would have been caused by price controls and rationing.
Yes, rationing. Nobody likes “price gouging,” but choices are always between alternatives. How else but higher prices are we going to decide who gets the short supply? The alternative to rationing by price is rationing by waiting in line, or by political preference. Or by who you know.
Paying higher prices is a reduction in your real income, and nobody likes that. But with less to go around, our collective real income is lower, no matter what the government does about it. The government can only transfer resources, not create them. And all the fixes to price gouging make the shortage worse, by discouraging people to cut back on demand or bring in new supplies.
Yet the cultural and moral disapproval of price gouging is strong. Going back thousands of years, people (and theologians) have felt that charging more than whatever they had gotten accustomed to is immoral, especially if the merchant happened to have an inventory purchased in an earlier time. This “just price” moral feeling surely motivates a lot of the anti price-gouging campaign. Economics has only understood how virtuous price gouging is in the last 250 years.
Indeed, companies are very reluctant to price-gouge. Costco let the shelves run out of toilet paper rather than raise pries. Other stores rationed: you can only have 4 rolls — no matter if the cupboard is bare and you have a house of 8 people with diarrhea or you’re just stocking up your summer house just in case. Their reluctance goes way beyond laws. To some extent they are afraid of being housed by politicians, short of actual legal trouble. But price gouging is terrible PR. And to some extent for good reasons. Stores want a reputation for buying cheaply and passing on the low cost to the customer.
As much as the US is the land of free markets — an it is, culturally, compared to other places — we have a ways to go in our cultural acceptance of market behavior. It should be, “you’re free to charge what you want for your property, and I’m free to not buy. Everybody stop whining.” It is not.
Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated.
This cultural and moral disapproval came home to me strongly about 25 years ago. We were driving from Chicago to Boston in our minivan, with 4 young children, dog, and my mother. We got to upstate NY, and needed to stop for the night. This was before cell phones and the internet, so the common thing to do was just pull of at a big freeway intersection, marked food, phone, gas, lodging, and see what’s available. Nothing. We tried hotel after hotel. We asked them to call around. Nothing. It turns out this was the weekend of Woodstock II. As the evening wore on, the children were turning in to pumpkins. Finally we found a seedy Super-8 motel that had 2 rooms left, for $400. This was back when Super-8 motel rooms were about $50 at most. I said immediately “Thank you, we’ll take them!” My mom was furious. “How dare he charge so much!” I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.”
It is surely morally worthy to give what you have to your neighbors in time of need, especially the less fortunate. But we should not demand gifts. And appropriation of property by threat of force, turning off the best mechanism we know for alleviating scarcity, does not follow. Moral feelings are a terrible guide for laws
Most politicians just supply what people demand. (A very few lead.) If the culture disapproves, they follow. Supply and demand, cause and effect, logic, evidence and experience be damned.
Kenya Uber Drivers set their own fares
NAIROBI, Aug 19 (Reuters) - In eight years of working as a taxi driver in Kenya's capital, Judith Chepkwony has never seen business this bad.
A bruising price war between ride-hailing companies Uber Technologies (UBER.N), opens new tab, Estonia's Bolt and local start-ups Little and Faras has driven fares down to a level that many drivers say is unsustainable, forcing them to set their own higher rates.
"Most of us have these cars on loan and the cost of living has risen," Chepkwony told Reuters. "I try to convince the customers to agree to the higher rates. If they can't pay, we cancel and let them find another driver."
About half the passengers who get in touch eventually agree to pay more than the price flashing up on their app generated by the companies' algorithms, Chepkwony said, keeping her going.
But Uber has said such arrangements break its guidelines and told its drivers to get back into line, setting up a clash between the slick, automated world of the international ride-hailing industry and the messier realities of one of its biggest developing markets.
The East African nation of 50 million people has been rocked by deadly protests against tax hikes which, together with high prices of basic commodities and elevated interest rates, has been blamed for lower disposable incomes.
Kenya, Nigeria and Tanzania - with their growing economies and relatively low car ownership rates - are among the most important markets for Uber in Africa, its executives have said.
But there have been challenges along the way. Drivers have gone on strike in Kenya, twice this year and at least once last year, over low commissions. Uber Head of East Africa Imran Manji told Reuters it was reviewing reports of customers being overcharged. "We encourage all riders to report such instances." Linda Ndung'u, Bolt's manager for Kenya, said they were discouraging fare-hiking while the industry searches for a solution to balance the needs of drivers and customers. While everyone waits, the drivers are finding ways to get round the industry's united front.
Many say they use walkie-talkie app Zello to collectively agree on higher prices, meaning a customer will get the same rate even if they shop around. Drivers have also produced a fare guide, which they print, laminate and post up inside their cars for customers to see.
One seen by Reuters set the minimum fare at 300 shillings ($2.33), above the 200 shillings set by Uber and Bolt who sometimes offer further discounts. "We first ask the client where they are going and how much is shown on the app. Then we propose a rate based on our chart which can also be done by quickly multiplying by 1.5," Nairobi-based driver Erick Nyamweya said.
"If they agree, we take the ride. If not we either negotiate further or decline because the current rates are not sustainable with higher fuel and spare parts prices." There has been some movement. Local start-up Faras Cabs raised its fares by up to a fifth this month to accommodate drivers' demands, Chief Commercial Officer Osman Abdi said. At the end of the day, it is the customer that pays, in money and time spent haggling.
"The negotiations end up taking so much time that it ends up beating the logic of trying to save time by taking a cab," said one customer, Lameck Owesi. "It is frustrating." ($1 = 128.5000 Kenyan shillings)
Stay up to date with the latest news, trends and innovations that are driving the global automotive industry with the Reuters Auto File newsletter. Sign up here. Reporting by Edwin Okoth; Editing by Duncan Miriri and Andrew Heavens
A bruising price war between ride-hailing companies Uber Technologies (UBER.N), opens new tab, Estonia's Bolt and local start-ups Little and Faras has driven fares down to a level that many drivers say is unsustainable, forcing them to set their own higher rates.
"Most of us have these cars on loan and the cost of living has risen," Chepkwony told Reuters. "I try to convince the customers to agree to the higher rates. If they can't pay, we cancel and let them find another driver."
About half the passengers who get in touch eventually agree to pay more than the price flashing up on their app generated by the companies' algorithms, Chepkwony said, keeping her going.
But Uber has said such arrangements break its guidelines and told its drivers to get back into line, setting up a clash between the slick, automated world of the international ride-hailing industry and the messier realities of one of its biggest developing markets.
The East African nation of 50 million people has been rocked by deadly protests against tax hikes which, together with high prices of basic commodities and elevated interest rates, has been blamed for lower disposable incomes.
Kenya, Nigeria and Tanzania - with their growing economies and relatively low car ownership rates - are among the most important markets for Uber in Africa, its executives have said.
But there have been challenges along the way. Drivers have gone on strike in Kenya, twice this year and at least once last year, over low commissions. Uber Head of East Africa Imran Manji told Reuters it was reviewing reports of customers being overcharged. "We encourage all riders to report such instances." Linda Ndung'u, Bolt's manager for Kenya, said they were discouraging fare-hiking while the industry searches for a solution to balance the needs of drivers and customers. While everyone waits, the drivers are finding ways to get round the industry's united front.
Many say they use walkie-talkie app Zello to collectively agree on higher prices, meaning a customer will get the same rate even if they shop around. Drivers have also produced a fare guide, which they print, laminate and post up inside their cars for customers to see.
One seen by Reuters set the minimum fare at 300 shillings ($2.33), above the 200 shillings set by Uber and Bolt who sometimes offer further discounts. "We first ask the client where they are going and how much is shown on the app. Then we propose a rate based on our chart which can also be done by quickly multiplying by 1.5," Nairobi-based driver Erick Nyamweya said.
"If they agree, we take the ride. If not we either negotiate further or decline because the current rates are not sustainable with higher fuel and spare parts prices." There has been some movement. Local start-up Faras Cabs raised its fares by up to a fifth this month to accommodate drivers' demands, Chief Commercial Officer Osman Abdi said. At the end of the day, it is the customer that pays, in money and time spent haggling.
"The negotiations end up taking so much time that it ends up beating the logic of trying to save time by taking a cab," said one customer, Lameck Owesi. "It is frustrating." ($1 = 128.5000 Kenyan shillings)
Stay up to date with the latest news, trends and innovations that are driving the global automotive industry with the Reuters Auto File newsletter. Sign up here. Reporting by Edwin Okoth; Editing by Duncan Miriri and Andrew Heavens
Housing policy
The worst parts of Vice President Kamala Harris’s economic plan are pretty bad. Like, so bad that her more credible defenders are reduced to arguing that silly proposals such as exempting tips from income tax at least poll well, and maybe when she says “first-ever federal ban on price-gouging on food,” she really just means “robust antitrust enforcement.”
In any case, supporters say, her best ideas are very good, especially her housing agenda. America’s housing crisis makes everything else about the U.S. economy worse: It exacerbates homelessness, slows family formation, prevents workers from moving to opportunity and puts an enormous strain on the budgets of hardworking people. Harris’s promise to build 3 million homes by the end of her first term is a signal that she understands what it takes to fix the problem and is serious about doing so.
It’s certainly true that America’s housing problems can’t be fixed without new supply. Unfortunately, it’s unlikely that 3 million homes, or anything close to that number, could be added in the next four years. Meanwhile, the other, not as good, parts of her housing agenda will be both easier to achieve and, absent the new housing supply, counterproductive. Harris’s housing plan has three main planks. One of these is $25,000 in down payment assistance for first-time home buyers, which she says will help more than 4 million home buyers over four years. Another is a plan to punish corporate landlords who buy up lots of single-family rental properties or use algorithmic software to set prices.
The third plank is the 3 million new homes, which Harris promises to get built with a combination of initiatives: a $40 billion “innovation fund”; “a historic expansion of the existing tax incentive for businesses that build rental housing that is affordable”; a new tax credit for building starter homes; and a red-tape initiative that is meant to streamline permitting processes for builders.
Without the millions of new houses, the two other initiatives risk making the housing situation worse. Restrictions on corporate landlords could shrink supply by undermining the build-to-rent market, which is currently one of the strongest sectors in new construction, according to developer Bobby Fijan. And that down payment assistance for first-time home buyers would likely end up in the pockets of existing homeowners, as newbies use it to bid up prices in a tight market. It’s not impossible to construct 750,000 extra homes a year — housing starts, which were about 1.2 million last year, hit 2.2 million at the peak of the housing bubble. But ramping up production to that level would take years, and might never happen, because the only real way to get there is via the one promise Harris will find hardest to keep — that is, to make it much easier for builders to build.
Although the subsidies for affordable housing might help on the margin, the more targeted they are to low-cost housing for people with modest incomes, the more red tape will be required to ensure they hit those targets and the less housing they’ll help build. For example, one major source of affordable rental housing is the low-income housing tax credit, which has been around nearly 40 years, and has built a total of 3.6 million units in that time. It would be hard for tax credits to produce even one-third of that number, again, in just four years.
Her new tax credit for starter homes will likely have similarly modest effects — both because it would take time to pass legislation and write regulations defining what exactly counts as a “starter home,” and because the more the regulations are tightly targeted to very cheap homes, the fewer homes she will build overall Perhaps such volume would be possible if government could speed things up and lower costs by streamlining red tape. But that is harder than it sounds, politically and practically.
Most regulatory barriers to building are state and local, not federal, and any attempt to override them must pass strict constitutional review, which could tie them up in court for years. Even if the administration finds some way around the federalism issues, actually getting local governments to expedite reviews is as much a management problem as a legal one, and her administration cannot micromanage every county seat and town hall.
Another problem is that, although “reducing obstacles to construction” is a nice-sounding policy proposal, the reason the construction obstacles still exist is that reducing them would mean angering a lot of voters — by slashing the number of inspections and reviews, paring back environmental standards and building codes, doing away with existing parking requirements and generally gutting communities’ ability to control how their neighborhoods develop, a power to which they are often very attached
At every step Harris will be faced with angry interest groups looking to gum up the works with lawsuits and pressure campaigns. Her reward, if she persists, would be that at some point in the distant future, some extra houses would be built, a fact for which she’ll get little credit. In contrast, bashing corporate landlords and handing out checks will produce big headlines and grateful voters right now.
So, if her policies are to be gauged by their political payoff, this one probably won’t measure up. Instead of a good housing plan marred by a few bad additions, the counterproductive stuff might be all we get.
It’s certainly true that America’s housing problems can’t be fixed without new supply. Unfortunately, it’s unlikely that 3 million homes, or anything close to that number, could be added in the next four years. Meanwhile, the other, not as good, parts of her housing agenda will be both easier to achieve and, absent the new housing supply, counterproductive. Harris’s housing plan has three main planks. One of these is $25,000 in down payment assistance for first-time home buyers, which she says will help more than 4 million home buyers over four years. Another is a plan to punish corporate landlords who buy up lots of single-family rental properties or use algorithmic software to set prices.
The third plank is the 3 million new homes, which Harris promises to get built with a combination of initiatives: a $40 billion “innovation fund”; “a historic expansion of the existing tax incentive for businesses that build rental housing that is affordable”; a new tax credit for building starter homes; and a red-tape initiative that is meant to streamline permitting processes for builders.
Without the millions of new houses, the two other initiatives risk making the housing situation worse. Restrictions on corporate landlords could shrink supply by undermining the build-to-rent market, which is currently one of the strongest sectors in new construction, according to developer Bobby Fijan. And that down payment assistance for first-time home buyers would likely end up in the pockets of existing homeowners, as newbies use it to bid up prices in a tight market. It’s not impossible to construct 750,000 extra homes a year — housing starts, which were about 1.2 million last year, hit 2.2 million at the peak of the housing bubble. But ramping up production to that level would take years, and might never happen, because the only real way to get there is via the one promise Harris will find hardest to keep — that is, to make it much easier for builders to build.
Although the subsidies for affordable housing might help on the margin, the more targeted they are to low-cost housing for people with modest incomes, the more red tape will be required to ensure they hit those targets and the less housing they’ll help build. For example, one major source of affordable rental housing is the low-income housing tax credit, which has been around nearly 40 years, and has built a total of 3.6 million units in that time. It would be hard for tax credits to produce even one-third of that number, again, in just four years.
Her new tax credit for starter homes will likely have similarly modest effects — both because it would take time to pass legislation and write regulations defining what exactly counts as a “starter home,” and because the more the regulations are tightly targeted to very cheap homes, the fewer homes she will build overall Perhaps such volume would be possible if government could speed things up and lower costs by streamlining red tape. But that is harder than it sounds, politically and practically.
Most regulatory barriers to building are state and local, not federal, and any attempt to override them must pass strict constitutional review, which could tie them up in court for years. Even if the administration finds some way around the federalism issues, actually getting local governments to expedite reviews is as much a management problem as a legal one, and her administration cannot micromanage every county seat and town hall.
Another problem is that, although “reducing obstacles to construction” is a nice-sounding policy proposal, the reason the construction obstacles still exist is that reducing them would mean angering a lot of voters — by slashing the number of inspections and reviews, paring back environmental standards and building codes, doing away with existing parking requirements and generally gutting communities’ ability to control how their neighborhoods develop, a power to which they are often very attached
At every step Harris will be faced with angry interest groups looking to gum up the works with lawsuits and pressure campaigns. Her reward, if she persists, would be that at some point in the distant future, some extra houses would be built, a fact for which she’ll get little credit. In contrast, bashing corporate landlords and handing out checks will produce big headlines and grateful voters right now.
So, if her policies are to be gauged by their political payoff, this one probably won’t measure up. Instead of a good housing plan marred by a few bad additions, the counterproductive stuff might be all we get.
What is Kamala's tax policy
What We Know About Kamala Harris’s $5 Trillion Tax Plan So Far
The vice president supports the tax increases proposed by the Biden White House, according to her campaign
In a campaign otherwise light on policy specifics, Vice President Kamala Harris this week quietly rolled out her most detailed, far-ranging proposal yet: nearly $5 trillion in tax increases over a decade.
That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring. Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration.
No one making less than $400,000 a year would see their taxes go up under the plan. Instead, Ms. Harris is seeking to significantly raise taxes on the wealthiest Americans and large corporations. Congress has previously rejected many of these tax ideas, even when Democrats controlled both chambers.
While tax policy is right now a subplot in a turbulent presidential campaign, it will be a primary policy issue in Washington next year. The next president will have to work with Congress to address the tax cuts Donald J. Trump signed into law in 2017. Many of those tax cuts expire after 2025, meaning millions of Americans will see their taxes go up if lawmakers don’t reach a deal next year
Here’s an overview of what we now know — and still don’t know — about the Democratic nominee’s views on taxes.
Higher taxes on corporations
The most recent White House budget includes several proposals that would raise taxes on large corporations. Chief among them is raising the corporate tax rate to 28 percent from 21 percent, a step that the Treasury Department estimated could bring in $1.3 trillion in revenue over the next 10 years.
Because the vice president supports the Biden budget’s tax hikes, Ms. Harris has also endorsed raising a tax on stock buybacks to 4 percent from 1 percent. Democrats first approved the stock buyback tax in 2022 as part of the Inflation Reduction Act. The legislation also requires big companies to pay taxes worth at least 15 percent of the income they report to investors. The goal of the new minimum tax is to curb companies’ ability to use deductions and tax credits to shrink their tax liability to as low as zero. Mr. Biden’s budget — and now Ms. Harris’s presidential campaign — calls for increasing that minimum tax to 21 percent from 15 percent.
In his budget, Mr. Biden also put out an overhaul of how multinational companies’ foreign earnings are taxed in the United States. The goal is to bring the United States into compliance with an international agreement that aims to stop companies moving into low-tax jurisdictions to avoid paying taxes. Mr. Biden’s budget calls for increasing and reorganizing a global minimum tax. Under the plan, the tax would be assessed on income in each individual country where the company operates, rather than on its global profits overall. The rate would double to 21 percent from 10.5 percent.
The budget Ms. Harris has now adopted also disallows companies from deducting the compensation of all employees making more than $1 million.
Ms. Harris would set the top marginal income rate at 39.6 percent, up from 37 percent. On top of that, she would also increase the rate on two parallel Medicare surtaxes to 5 percent from 3.8 percent for Americans making more than $400,000 and expand the income subject to one of them. Together, the Medicare and income proposals would create a top marginal rate as high as 44.6 percent.
Wealthy Americans would see more fundamental changes in how gains on investments in stocks, bonds, real estate and other assets are taxed. For Americans making more than $1 million a year, investment earnings would be taxed at the same rate as regular income, instead of at the lower rates for capital gains.
The White House tax plan targets what some Democrats see as a gaping loophole in the tax code: the so-called step-up in basis. Under the current law, Americans owe capital-gains taxes when an asset is sold, but not if they pass those assets on to someone else at the time of their death. That means someone who inherits assets from a deceased parent, for example, does not have to pay taxes on how much those assets appreciated since they were purchased. Instead, the person who inherits the assets has to pay taxes on the gains only from the time they were inherited — and only once they are sold.
Ms. Harris has endorsed a plan to tax the gains on those assets at the original owner’s death, though several exemptions would apply, including when a surviving spouse inherits the assets
The tax plan would also try to tax the wealthiest Americans’ investment gains before they sell the assets or die. People with more than $100 million in wealth would have to pay at least 25 percent on a combination of their income and their unrealized capital gains — the value of the appreciation in the stocks, bonds, real estate and other assets that they own but haven’t sold. The so-called billionaires-minimum tax could create hefty tax bills for people like Elon Musk who derive much of their wealth from stock they own.
Questions still loom
Ms. Harris’s commitment to the White House budget clarifies much about how she hopes to raise revenue if she wins the election in November. But even the thick White House budget leaves several key tax questions unaddressed, including how exactly Democrats should approach the expiration of key provisions in the Tax Cuts and Jobs Act next year.
The expiring measures included a broader standard deduction, lower marginal income rates for many Americans, and a generous deduction for owners of many closely-held businesses. The White House tax plan states that Americans making less than $400,000 should not see tax increases in a deal. That means that Ms. Harris wants to extend much of the Tax Cuts and Jobs Act, her Republican rival’s signature legislative accomplishment.
Extending the tax cuts for Americans making less than $400,000 could take up much of the roughly $4 trillion cost for continuing all of the lapsing provisions.
Ms. Harris’s campaign has said she would seek to reduce the deficit. But other proposed tax cuts are piling up. On the campaign trail, Ms. Harris has rolled out spending plans and several tax cuts, including a more generous child tax credit, that the Committee for a Responsible Federal Budget estimates could cost roughly $2 trillion over a decade. This week, Senator Chuck Schumer, a New York Democrat and the majority leader, called for the restoration of a huge tax break: the state and local tax deduction. That deduction is currently capped at $10,000, but the limit expires after next year. Fully restoring the ability of Americans to deduct their state and local taxes from their federal bills could cost roughly $1 trillion over a decade.
So the $5 trillion in tax increases embraced by Ms. Harris this week may not ultimately be enough to cover the cost of her and other Democrats’ ambitions next year.
Andrew Duehren covers tax policy for The Times from Washington. More about Andrew Duehren
The vice president supports the tax increases proposed by the Biden White House, according to her campaign
In a campaign otherwise light on policy specifics, Vice President Kamala Harris this week quietly rolled out her most detailed, far-ranging proposal yet: nearly $5 trillion in tax increases over a decade.
That’s how much more revenue the federal government would raise if it adopted a number of tax increases that President Biden proposed in the spring. Ms. Harris’s campaign said this week that she supported those tax hikes, which were thoroughly laid out in the most recent federal budget plan prepared by the Biden administration.
No one making less than $400,000 a year would see their taxes go up under the plan. Instead, Ms. Harris is seeking to significantly raise taxes on the wealthiest Americans and large corporations. Congress has previously rejected many of these tax ideas, even when Democrats controlled both chambers.
While tax policy is right now a subplot in a turbulent presidential campaign, it will be a primary policy issue in Washington next year. The next president will have to work with Congress to address the tax cuts Donald J. Trump signed into law in 2017. Many of those tax cuts expire after 2025, meaning millions of Americans will see their taxes go up if lawmakers don’t reach a deal next year
Here’s an overview of what we now know — and still don’t know — about the Democratic nominee’s views on taxes.
Higher taxes on corporations
The most recent White House budget includes several proposals that would raise taxes on large corporations. Chief among them is raising the corporate tax rate to 28 percent from 21 percent, a step that the Treasury Department estimated could bring in $1.3 trillion in revenue over the next 10 years.
Because the vice president supports the Biden budget’s tax hikes, Ms. Harris has also endorsed raising a tax on stock buybacks to 4 percent from 1 percent. Democrats first approved the stock buyback tax in 2022 as part of the Inflation Reduction Act. The legislation also requires big companies to pay taxes worth at least 15 percent of the income they report to investors. The goal of the new minimum tax is to curb companies’ ability to use deductions and tax credits to shrink their tax liability to as low as zero. Mr. Biden’s budget — and now Ms. Harris’s presidential campaign — calls for increasing that minimum tax to 21 percent from 15 percent.
In his budget, Mr. Biden also put out an overhaul of how multinational companies’ foreign earnings are taxed in the United States. The goal is to bring the United States into compliance with an international agreement that aims to stop companies moving into low-tax jurisdictions to avoid paying taxes. Mr. Biden’s budget calls for increasing and reorganizing a global minimum tax. Under the plan, the tax would be assessed on income in each individual country where the company operates, rather than on its global profits overall. The rate would double to 21 percent from 10.5 percent.
The budget Ms. Harris has now adopted also disallows companies from deducting the compensation of all employees making more than $1 million.
Ms. Harris would set the top marginal income rate at 39.6 percent, up from 37 percent. On top of that, she would also increase the rate on two parallel Medicare surtaxes to 5 percent from 3.8 percent for Americans making more than $400,000 and expand the income subject to one of them. Together, the Medicare and income proposals would create a top marginal rate as high as 44.6 percent.
Wealthy Americans would see more fundamental changes in how gains on investments in stocks, bonds, real estate and other assets are taxed. For Americans making more than $1 million a year, investment earnings would be taxed at the same rate as regular income, instead of at the lower rates for capital gains.
The White House tax plan targets what some Democrats see as a gaping loophole in the tax code: the so-called step-up in basis. Under the current law, Americans owe capital-gains taxes when an asset is sold, but not if they pass those assets on to someone else at the time of their death. That means someone who inherits assets from a deceased parent, for example, does not have to pay taxes on how much those assets appreciated since they were purchased. Instead, the person who inherits the assets has to pay taxes on the gains only from the time they were inherited — and only once they are sold.
Ms. Harris has endorsed a plan to tax the gains on those assets at the original owner’s death, though several exemptions would apply, including when a surviving spouse inherits the assets
The tax plan would also try to tax the wealthiest Americans’ investment gains before they sell the assets or die. People with more than $100 million in wealth would have to pay at least 25 percent on a combination of their income and their unrealized capital gains — the value of the appreciation in the stocks, bonds, real estate and other assets that they own but haven’t sold. The so-called billionaires-minimum tax could create hefty tax bills for people like Elon Musk who derive much of their wealth from stock they own.
Questions still loom
Ms. Harris’s commitment to the White House budget clarifies much about how she hopes to raise revenue if she wins the election in November. But even the thick White House budget leaves several key tax questions unaddressed, including how exactly Democrats should approach the expiration of key provisions in the Tax Cuts and Jobs Act next year.
The expiring measures included a broader standard deduction, lower marginal income rates for many Americans, and a generous deduction for owners of many closely-held businesses. The White House tax plan states that Americans making less than $400,000 should not see tax increases in a deal. That means that Ms. Harris wants to extend much of the Tax Cuts and Jobs Act, her Republican rival’s signature legislative accomplishment.
Extending the tax cuts for Americans making less than $400,000 could take up much of the roughly $4 trillion cost for continuing all of the lapsing provisions.
Ms. Harris’s campaign has said she would seek to reduce the deficit. But other proposed tax cuts are piling up. On the campaign trail, Ms. Harris has rolled out spending plans and several tax cuts, including a more generous child tax credit, that the Committee for a Responsible Federal Budget estimates could cost roughly $2 trillion over a decade. This week, Senator Chuck Schumer, a New York Democrat and the majority leader, called for the restoration of a huge tax break: the state and local tax deduction. That deduction is currently capped at $10,000, but the limit expires after next year. Fully restoring the ability of Americans to deduct their state and local taxes from their federal bills could cost roughly $1 trillion over a decade.
So the $5 trillion in tax increases embraced by Ms. Harris this week may not ultimately be enough to cover the cost of her and other Democrats’ ambitions next year.
Andrew Duehren covers tax policy for The Times from Washington. More about Andrew Duehren
Sunday, August 18, 2024
RBI Monetary Policy Statement
On the basis of an assessment of the current and evolving macroeconomic situation, the Monetary Policy Committee (MPC) at its meeting today (August 8, 2024) decided to:
Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
Assessment and Outlook
2. The global economic outlook remains resilient although with some moderation in pace. Inflation is retreating in major economies but services price inflation persists. International prices of food, energy and base metals have eased since the last policy meeting. With varying growth-inflation prospects, central banks are diverging in their policy paths. This is creating volatility in financial markets. Amidst recent global sell offs in equities, the dollar index has weakened, sovereign bond yields have eased sharply and gold prices have soared to record highs.
3. Domestic economic activity continues to sustain its momentum. After a weak and delayed start, the cumulative southwest monsoon rainfall has picked up with improving spatial spread. By August 7, 2024, it was 7 per cent above the long period average. This has supported kharif sowing, with total area sown as on August 2, being 2.9 per cent higher than a year ago. Industrial output registered an expansion of 5.9 per cent (y-o-y) in May 2024. Core industries rose by 4.0 per cent in June, against 6.4 per cent in May. Other high frequency indicators released during June-July 2024 indicate expansion of services sector activity, ongoing revival of private consumption, and signs of pickup in private investment activity. Merchandise exports, non-oil non-gold imports, services exports and imports expanded during April-June.
4. Going forward, the Indian Meteorological Department’s (IMD) projection of above normal southwest monsoon and healthy kharif sowing will support improving rural demand. The sustained momentum in manufacturing and services suggests steady urban demand. High frequency indicators of investment activity as evident in strong expansion in steel consumption, high capacity utilisation, healthy balance sheets of banks and corporates, and the Government’s continued thrust on infrastructure spending, point to a robust outlook. Improving world trade prospects could support external demand. Headwinds from geopolitical tensions, volatility in international commodity prices and geoeconomic fragmentation, however, pose risks to the outlook. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.1 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent. Real GDP growth for Q1:2025-26 is projected at 7.2 per cent (Chart 1). The risks are evenly balanced.
5. Headline inflation increased to 5.1 per cent in June 2024 after remaining steady at 4.8 per cent during April-May 2024. Worsening of food inflation pressures – driven primarily by a sharp increase in prices of vegetables, pulses and edible oils along with a pick-up in inflation across cereals, milk, fruits and prepared meals – pushed up headline inflation. The fuel group remained in deflation, reflecting the cumulative impact of the sharp cuts in LPG price in August 2023 and March 2024. Core (CPI excluding food and fuel) inflation at 3.1 per cent in May-June touched a new low in the current CPI series, with core services inflation also at its lowest in the series.
6. Headline inflation has moderated from its peak but unevenly. Looking ahead, food price momentum has remained elevated in July. In Q2:2024-25, though favourable base effects are large, the sharper uptick in price momentum relative to earlier expectations is likely to result in a shallower softening of CPI headline inflation. Inflation is expected to edge up in Q3 as favourable base effects taper off. The steady progress in monsoon, pick-up in kharif sowing, adequate buffer stocks of foodgrains and easing global food prices are positives for containing food price pressures. Adverse climate events remain an upside risk to food inflation. Crude oil prices continue to be volatile on demand concerns and geopolitical tensions. The revision in mobile tariff rates is likely to lead to an increase in core inflation. Manufacturing, services and infrastructure firms surveyed by the Reserve Bank expect a pickup in selling prices in the second half of this year. Households’ inflation expectations have also gone up and consumer confidence has weakened. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. CPI inflation for Q1:2025-26 is projected at 4.4 per cent (Chart 2). The risks are evenly balanced.
7.The MPC expects domestic growth to hold up on the strength of investment demand, steady urban consumption and rising rural consumption. Risks from volatile and elevated food prices remain high, which may adversely impact inflation expectations and result in spillovers to core inflation. There are also indications of core inflation bottoming out. Accordingly, the MPC decided to remain watchful on how these forces play out, going forward. The MPC stays resolute in its commitment to aligning inflation to the 4 per cent target on a durable basis. In these circumstances, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The MPC reiterates the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved. Enduring price stability sets strong foundations for a sustained period of high growth. Hence the MPC also considers it appropriate to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
8. Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points.
9. Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted for a change in stance to neutral.
10. The minutes of the MPC’s meeting will be published on August 22, 2024.
11. The next meeting of the MPC is scheduled during October 7 to 9, 2024.
(Puneet Pancholy) Chief General Manager Press Release: 2024-2025/850
Keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50 per cent. Consequently, the standing deposit facility (SDF) rate remains unchanged at 6.25 per cent and the marginal standing facility (MSF) rate and the Bank Rate at 6.75 per cent.
The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. These decisions are in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
Assessment and Outlook
2. The global economic outlook remains resilient although with some moderation in pace. Inflation is retreating in major economies but services price inflation persists. International prices of food, energy and base metals have eased since the last policy meeting. With varying growth-inflation prospects, central banks are diverging in their policy paths. This is creating volatility in financial markets. Amidst recent global sell offs in equities, the dollar index has weakened, sovereign bond yields have eased sharply and gold prices have soared to record highs.
3. Domestic economic activity continues to sustain its momentum. After a weak and delayed start, the cumulative southwest monsoon rainfall has picked up with improving spatial spread. By August 7, 2024, it was 7 per cent above the long period average. This has supported kharif sowing, with total area sown as on August 2, being 2.9 per cent higher than a year ago. Industrial output registered an expansion of 5.9 per cent (y-o-y) in May 2024. Core industries rose by 4.0 per cent in June, against 6.4 per cent in May. Other high frequency indicators released during June-July 2024 indicate expansion of services sector activity, ongoing revival of private consumption, and signs of pickup in private investment activity. Merchandise exports, non-oil non-gold imports, services exports and imports expanded during April-June.
4. Going forward, the Indian Meteorological Department’s (IMD) projection of above normal southwest monsoon and healthy kharif sowing will support improving rural demand. The sustained momentum in manufacturing and services suggests steady urban demand. High frequency indicators of investment activity as evident in strong expansion in steel consumption, high capacity utilisation, healthy balance sheets of banks and corporates, and the Government’s continued thrust on infrastructure spending, point to a robust outlook. Improving world trade prospects could support external demand. Headwinds from geopolitical tensions, volatility in international commodity prices and geoeconomic fragmentation, however, pose risks to the outlook. Taking all these factors into consideration, real GDP growth for 2024-25 is projected at 7.2 per cent with Q1 at 7.1 per cent; Q2 at 7.2 per cent; Q3 at 7.3 per cent; and Q4 at 7.2 per cent. Real GDP growth for Q1:2025-26 is projected at 7.2 per cent (Chart 1). The risks are evenly balanced.
5. Headline inflation increased to 5.1 per cent in June 2024 after remaining steady at 4.8 per cent during April-May 2024. Worsening of food inflation pressures – driven primarily by a sharp increase in prices of vegetables, pulses and edible oils along with a pick-up in inflation across cereals, milk, fruits and prepared meals – pushed up headline inflation. The fuel group remained in deflation, reflecting the cumulative impact of the sharp cuts in LPG price in August 2023 and March 2024. Core (CPI excluding food and fuel) inflation at 3.1 per cent in May-June touched a new low in the current CPI series, with core services inflation also at its lowest in the series.
6. Headline inflation has moderated from its peak but unevenly. Looking ahead, food price momentum has remained elevated in July. In Q2:2024-25, though favourable base effects are large, the sharper uptick in price momentum relative to earlier expectations is likely to result in a shallower softening of CPI headline inflation. Inflation is expected to edge up in Q3 as favourable base effects taper off. The steady progress in monsoon, pick-up in kharif sowing, adequate buffer stocks of foodgrains and easing global food prices are positives for containing food price pressures. Adverse climate events remain an upside risk to food inflation. Crude oil prices continue to be volatile on demand concerns and geopolitical tensions. The revision in mobile tariff rates is likely to lead to an increase in core inflation. Manufacturing, services and infrastructure firms surveyed by the Reserve Bank expect a pickup in selling prices in the second half of this year. Households’ inflation expectations have also gone up and consumer confidence has weakened. Assuming a normal monsoon, CPI inflation for 2024-25 is projected at 4.5 per cent with Q2 at 4.4 per cent; Q3 at 4.7 per cent; and Q4 at 4.3 per cent. CPI inflation for Q1:2025-26 is projected at 4.4 per cent (Chart 2). The risks are evenly balanced.
7.The MPC expects domestic growth to hold up on the strength of investment demand, steady urban consumption and rising rural consumption. Risks from volatile and elevated food prices remain high, which may adversely impact inflation expectations and result in spillovers to core inflation. There are also indications of core inflation bottoming out. Accordingly, the MPC decided to remain watchful on how these forces play out, going forward. The MPC stays resolute in its commitment to aligning inflation to the 4 per cent target on a durable basis. In these circumstances, the MPC decided to keep the policy repo rate unchanged at 6.50 per cent in this meeting. The MPC reiterates the need to continue with the disinflationary stance, until a durable alignment of the headline CPI inflation with the target is achieved. Enduring price stability sets strong foundations for a sustained period of high growth. Hence the MPC also considers it appropriate to continue with the disinflationary stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth.
8. Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to keep the policy repo rate unchanged at 6.50 per cent. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted to reduce the policy repo rate by 25 basis points.
9. Dr. Shashanka Bhide, Dr. Rajiv Ranjan, Dr. Michael Debabrata Patra and Shri Shaktikanta Das voted to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. Dr. Ashima Goyal and Prof. Jayanth R. Varma voted for a change in stance to neutral.
10. The minutes of the MPC’s meeting will be published on August 22, 2024.
11. The next meeting of the MPC is scheduled during October 7 to 9, 2024.
(Puneet Pancholy) Chief General Manager Press Release: 2024-2025/850
John Cochrane on Trump
Incompetent Elites Make Trump Look Appealing
His supporters don’t love everything about him but are sick of being disdained and misgoverned.
Democrats and traditional Republicans are flummoxed. How are 4 in 10 of our fellow citizens ready to vote for Donald Trump? …
What motivates Trump supporters? Simple: They want their country back.
I mention Iraq, Afghanistan, and the financial crisis, all of which hit middle America hard, and from which they surmised that the foreign policy and economic elites don’t know what they’re doing. I mention official Washington’s Trump derangement, the second round of the illegitimacy wars.
In 2020 Covid hit. Trump supporters initially went along, trusting institutions. But the pandemic soon exposed the politicized incompetence of the Food and Drug Administration, the Centers for Disease Control and Prevention, and the scientific establishment. Lockdowns destroyed lives. Officials made up rules and ramped up censorship. Inquiries about whether the virus came from a lab leak, or anything negative about masks or vaccines, became “misinformation” subject to censorship. Trump supporters saw media, tech companies and national-security bigwigs suppress the news of the Hunter Biden laptop just in time for the election.
When schools went remote, parents found out what was actually going on inside the classrooms. Teachers were coaching students to hate themselves, their country and their religious traditions and sexualizing young children. The FBI treated angry parents as domestic terrorists. After Oct. 7, Trump supporters learned that universities are incompetent and politicized and disdain people like them. They saw that once-trusted mainstream-media outlets had become political advocates long ago.
Voters see the chaos of a dysfunctional immigration system spill into their neighborhoods. They see crime overwhelming and shutting down cities where officials refuse to enforce laws. They see the homeless invading public spaces.
They aren’t proud of Mr. Trump’s actions after the 2020 election. But 91 felony counts, some brought by prosecutors who campaigned on a promise to get Mr. Trump, and most unrelated to the election? Bonnie and Clyde didn’t have this much legal trouble! And now disqualifying Mr. Trump from the ballot? “Destroy democracy to save democracy” is no longer a joke. The existence of the deep state seems to be confirmed with every outrage….
This election isn’t about employment, spending promises or 12-point policy plans. Voters everywhere want the basic institutions of American society and government to return to a semblance of apolitical competence.
A little advice at the end:
What should Nikki Haley do? Show that she understands this deep frustration. Explain how she will fix the country’s institutions and why Mr. Trump won’t or can’t.
Haley has not been very articulate about voicing these sorts of concerns or specific about what she stands for.
I also have some advice Democrats. The latter, particularly,
Stop falling into the obvious trap. Mr. Trump is gifted at provoking ridiculous overreaction from his opponents.
*****
Bret Stephens wrote a similar column at the New York Times. Though he had to say over and over how awful he thinks Trump is, and would never never support him — some things are unsayable at the Times — he nonetheless channeled some of the same feelings so effectively one begins to wonder. He’s also a much better writer, and the Times gave him more than the 900 word Haikus I write for WSJ.
The whole thing is good reading but here are some of the best bits.
Too many people, especially progressives, fail to think deeply about the enduring sources of his appeal — and to do so without calling him names, or disparaging his supporters, or attributing his resurgence to nefarious foreign actors or the unfairness of the Electoral College….
Trump got three big things right …
Arguably the single most important geopolitical fact of the century is the mass migration …. Trump understood this from the start of his presidential candidacy in 2015, ..
It said something about the self-deluded state of Western politics when Trump came on the scene that his assertion of the obvious was treated as a moral scandal… To millions of other Americans, his message, however crudely he may have expressed it, sounded like plain common sense.
The second big thing Trump got right was about the broad direction of the country. …
Finally, there’s the question of institutions that are supposed to represent impartial expertise, from elite universities and media to the Centers for Disease Control and Prevention and the F.B.I. … those institutions did their own work in squandering, through partisanship or incompetence, the esteem in which they had once been widely held.
…. Much of the elite media, mostly liberal, became openly partisan in the 2016 election … Academia… became increasingly illiberal, inhospitable not just to conservatives but to anyone pushing back even modestly against progressive orthodoxy. The F.B.I. abused its authority with dubious investigations and salacious leaks that led to sensational headlines but not to criminal prosecutions, much less convictions. The C.D.C. and other public-health bureaucracies flubbed the pandemic reaction, …
Trump and his supporters called all this out. For this they were called idiots, liars and bigots by people who think of themselves as enlightened and empathetic and hold the commanding heights in the national culture. ..
In 2016, Trump was frequently compared to Benito Mussolini and other dictators…. The comparison might have proved more persuasive if Trump’s presidency had been replete with jailed and assassinated political opponents, rigged or canceled elections, a muzzled or captured press — and Trump still holding office today, rather than running to get his old job back. The election denialism is surely ugly, but it isn’t quite unique: Prominent Democrats also denied the legitimacy of George W. Bush’s two elections — the second one no less than the first.
…warnings from Biden and others about the risk Trump poses to democracy are likely to fall flat even with many moderate voters. If there’s any serious threat to democracy, doesn’t it also come from Democratic judges and state officials who are using never-before-used legal theories… to try to kick Trump’s name off ballots in Maine and Colorado?
brokenness has become the defining feature of much of American life: broken families, broken public schools, broken small towns and inner cities, broken universities, broken health care, broken media, broken churches, broken borders, broken government.
…if Republican voters think the central problem in America today is obnoxious progressives, then how better to spite them than by shoving Trump down their throats for another four years?
…I don’t see Trump’s opponents making headway against him until they at least acknowledge the legitimacy and power of the fundamental complaint. If you’re saying it’s “morning in America” when 77 percent of Americans think the country is on the wrong track, you’re preaching to the wrong choir — and the wrong country.
Trump’s opponents say this is the most important election of our lifetime. Isn’t it time, then, to take our heads out of the sand?
You can’t defeat what you don’t understand.
******
Trump’s opponents also need to take a deep breath, and recognize that Trump is the best politician in the country. How can I say such an outrageous thing? Think about it. Nobody else in a century and a half has come back from losing an election. Did you possibly imagine on Dec 6 2021 that Trump would be back, and ahead in the polls? I thought when he started on the stolen election business in November 2020 that he was finished. I was absolutely wrong. I am not saying anything here about Trump as a leader or president. John Bolton could be right in his scathing criticism. His admirers could be right. But the politician’s first job is to get elected.
What are his talents? First, he listened. He won in 2016 because he heard applause at rallies over China and Immigrants, and went with what people cared about. (Casey Mulligan’s very interesting book offers many insights of this sort.) Us technocrats may complain that tariffs are bad and well-integrated immigrants good, but the question is about how you get elected.
Second, as I said, he is superb at doing things just outrageous enough to provoke Democrats to overreact, but just short of the line that even his supporters would have to admit he went too far. He gets the democrats to reveal they’re not so fond of democracy — in its old fashioned meaning that voters get to choose leaders even if they choose ones you don’t like. Every new flimsy indictment raises Trump in the polls. Getting the other side to over react is a time honored strategy, but it takes a lot of skill.
Third, I only recently appreciated how Trump has taken control of the Republican Party. The New York Times reported in depth on how he got practically everyone to endorse him, early on. The tone of the piece was, of course, how scandalous and awful this is, and how weak and craven the endorsing politicians are. But as I read it, with slightly different tone this could be Robert Caro writing about Lyndon Johnson and how Johnson similarly cajoled, demeaned and threatened people in to doing what he wanted. Johnson was a great politician, no matter what you think of his policies.
How Trump Has Used Fear and Favor to Win Republican Endorsements
The former president keeps careful watch over his endorsements from elected Republicans, aided by a disciplined and methodical behind-the-scenes operation.
…Mr. Trump has obsessed over his scorecard of endorsers,
Mr. Trump works his endorsements through both fear and favor, happily cajoling fellow politicians by phone while firing off ominous social media posts about those who don’t fall in line quickly enough…
Since 2017, Mr. Trump has invested hundreds of hours in his political relationships, repeatedly using the trappings of the presidency to do so. He is constantly on the phone to Republican lawmakers. He invites them to dinner at his clubs, for rounds of golf and for flights on his jet.
Yes. That’s what politicians do.
I was struck by the contrast in a later and eerily parallel Times article about Nikki Haley:
Why Nikki Haley Has So Few Friends Left in South Carolina Politics
Nikki Haley could use some help rescuing her campaign. But Republicans in her home state are flocking to Donald J. Trump.
The stories pile up one after another, of thanks not offered, allies antagonized, opponents not forgiven — a portrait of a politician who climbed the ladder with speed and skill but failed to ensure that the people who helped her would have her back if she needed them.
If Haley is not doing well, this could be why. It’s not all about media, social or legacy, even today. People matter. Politics matters.
Listen to his supporters, and don’t fall in to the trap of underestimating his political ability.
His supporters don’t love everything about him but are sick of being disdained and misgoverned.
Democrats and traditional Republicans are flummoxed. How are 4 in 10 of our fellow citizens ready to vote for Donald Trump? …
What motivates Trump supporters? Simple: They want their country back.
I mention Iraq, Afghanistan, and the financial crisis, all of which hit middle America hard, and from which they surmised that the foreign policy and economic elites don’t know what they’re doing. I mention official Washington’s Trump derangement, the second round of the illegitimacy wars.
In 2020 Covid hit. Trump supporters initially went along, trusting institutions. But the pandemic soon exposed the politicized incompetence of the Food and Drug Administration, the Centers for Disease Control and Prevention, and the scientific establishment. Lockdowns destroyed lives. Officials made up rules and ramped up censorship. Inquiries about whether the virus came from a lab leak, or anything negative about masks or vaccines, became “misinformation” subject to censorship. Trump supporters saw media, tech companies and national-security bigwigs suppress the news of the Hunter Biden laptop just in time for the election.
When schools went remote, parents found out what was actually going on inside the classrooms. Teachers were coaching students to hate themselves, their country and their religious traditions and sexualizing young children. The FBI treated angry parents as domestic terrorists. After Oct. 7, Trump supporters learned that universities are incompetent and politicized and disdain people like them. They saw that once-trusted mainstream-media outlets had become political advocates long ago.
Voters see the chaos of a dysfunctional immigration system spill into their neighborhoods. They see crime overwhelming and shutting down cities where officials refuse to enforce laws. They see the homeless invading public spaces.
They aren’t proud of Mr. Trump’s actions after the 2020 election. But 91 felony counts, some brought by prosecutors who campaigned on a promise to get Mr. Trump, and most unrelated to the election? Bonnie and Clyde didn’t have this much legal trouble! And now disqualifying Mr. Trump from the ballot? “Destroy democracy to save democracy” is no longer a joke. The existence of the deep state seems to be confirmed with every outrage….
This election isn’t about employment, spending promises or 12-point policy plans. Voters everywhere want the basic institutions of American society and government to return to a semblance of apolitical competence.
A little advice at the end:
What should Nikki Haley do? Show that she understands this deep frustration. Explain how she will fix the country’s institutions and why Mr. Trump won’t or can’t.
Haley has not been very articulate about voicing these sorts of concerns or specific about what she stands for.
I also have some advice Democrats. The latter, particularly,
Stop falling into the obvious trap. Mr. Trump is gifted at provoking ridiculous overreaction from his opponents.
*****
Bret Stephens wrote a similar column at the New York Times. Though he had to say over and over how awful he thinks Trump is, and would never never support him — some things are unsayable at the Times — he nonetheless channeled some of the same feelings so effectively one begins to wonder. He’s also a much better writer, and the Times gave him more than the 900 word Haikus I write for WSJ.
The whole thing is good reading but here are some of the best bits.
Too many people, especially progressives, fail to think deeply about the enduring sources of his appeal — and to do so without calling him names, or disparaging his supporters, or attributing his resurgence to nefarious foreign actors or the unfairness of the Electoral College….
Trump got three big things right …
Arguably the single most important geopolitical fact of the century is the mass migration …. Trump understood this from the start of his presidential candidacy in 2015, ..
It said something about the self-deluded state of Western politics when Trump came on the scene that his assertion of the obvious was treated as a moral scandal… To millions of other Americans, his message, however crudely he may have expressed it, sounded like plain common sense.
The second big thing Trump got right was about the broad direction of the country. …
Finally, there’s the question of institutions that are supposed to represent impartial expertise, from elite universities and media to the Centers for Disease Control and Prevention and the F.B.I. … those institutions did their own work in squandering, through partisanship or incompetence, the esteem in which they had once been widely held.
…. Much of the elite media, mostly liberal, became openly partisan in the 2016 election … Academia… became increasingly illiberal, inhospitable not just to conservatives but to anyone pushing back even modestly against progressive orthodoxy. The F.B.I. abused its authority with dubious investigations and salacious leaks that led to sensational headlines but not to criminal prosecutions, much less convictions. The C.D.C. and other public-health bureaucracies flubbed the pandemic reaction, …
Trump and his supporters called all this out. For this they were called idiots, liars and bigots by people who think of themselves as enlightened and empathetic and hold the commanding heights in the national culture. ..
In 2016, Trump was frequently compared to Benito Mussolini and other dictators…. The comparison might have proved more persuasive if Trump’s presidency had been replete with jailed and assassinated political opponents, rigged or canceled elections, a muzzled or captured press — and Trump still holding office today, rather than running to get his old job back. The election denialism is surely ugly, but it isn’t quite unique: Prominent Democrats also denied the legitimacy of George W. Bush’s two elections — the second one no less than the first.
…warnings from Biden and others about the risk Trump poses to democracy are likely to fall flat even with many moderate voters. If there’s any serious threat to democracy, doesn’t it also come from Democratic judges and state officials who are using never-before-used legal theories… to try to kick Trump’s name off ballots in Maine and Colorado?
brokenness has become the defining feature of much of American life: broken families, broken public schools, broken small towns and inner cities, broken universities, broken health care, broken media, broken churches, broken borders, broken government.
…if Republican voters think the central problem in America today is obnoxious progressives, then how better to spite them than by shoving Trump down their throats for another four years?
…I don’t see Trump’s opponents making headway against him until they at least acknowledge the legitimacy and power of the fundamental complaint. If you’re saying it’s “morning in America” when 77 percent of Americans think the country is on the wrong track, you’re preaching to the wrong choir — and the wrong country.
Trump’s opponents say this is the most important election of our lifetime. Isn’t it time, then, to take our heads out of the sand?
You can’t defeat what you don’t understand.
******
Trump’s opponents also need to take a deep breath, and recognize that Trump is the best politician in the country. How can I say such an outrageous thing? Think about it. Nobody else in a century and a half has come back from losing an election. Did you possibly imagine on Dec 6 2021 that Trump would be back, and ahead in the polls? I thought when he started on the stolen election business in November 2020 that he was finished. I was absolutely wrong. I am not saying anything here about Trump as a leader or president. John Bolton could be right in his scathing criticism. His admirers could be right. But the politician’s first job is to get elected.
What are his talents? First, he listened. He won in 2016 because he heard applause at rallies over China and Immigrants, and went with what people cared about. (Casey Mulligan’s very interesting book offers many insights of this sort.) Us technocrats may complain that tariffs are bad and well-integrated immigrants good, but the question is about how you get elected.
Second, as I said, he is superb at doing things just outrageous enough to provoke Democrats to overreact, but just short of the line that even his supporters would have to admit he went too far. He gets the democrats to reveal they’re not so fond of democracy — in its old fashioned meaning that voters get to choose leaders even if they choose ones you don’t like. Every new flimsy indictment raises Trump in the polls. Getting the other side to over react is a time honored strategy, but it takes a lot of skill.
Third, I only recently appreciated how Trump has taken control of the Republican Party. The New York Times reported in depth on how he got practically everyone to endorse him, early on. The tone of the piece was, of course, how scandalous and awful this is, and how weak and craven the endorsing politicians are. But as I read it, with slightly different tone this could be Robert Caro writing about Lyndon Johnson and how Johnson similarly cajoled, demeaned and threatened people in to doing what he wanted. Johnson was a great politician, no matter what you think of his policies.
How Trump Has Used Fear and Favor to Win Republican Endorsements
The former president keeps careful watch over his endorsements from elected Republicans, aided by a disciplined and methodical behind-the-scenes operation.
…Mr. Trump has obsessed over his scorecard of endorsers,
Mr. Trump works his endorsements through both fear and favor, happily cajoling fellow politicians by phone while firing off ominous social media posts about those who don’t fall in line quickly enough…
Since 2017, Mr. Trump has invested hundreds of hours in his political relationships, repeatedly using the trappings of the presidency to do so. He is constantly on the phone to Republican lawmakers. He invites them to dinner at his clubs, for rounds of golf and for flights on his jet.
Yes. That’s what politicians do.
I was struck by the contrast in a later and eerily parallel Times article about Nikki Haley:
Why Nikki Haley Has So Few Friends Left in South Carolina Politics
Nikki Haley could use some help rescuing her campaign. But Republicans in her home state are flocking to Donald J. Trump.
The stories pile up one after another, of thanks not offered, allies antagonized, opponents not forgiven — a portrait of a politician who climbed the ladder with speed and skill but failed to ensure that the people who helped her would have her back if she needed them.
If Haley is not doing well, this could be why. It’s not all about media, social or legacy, even today. People matter. Politics matters.
Listen to his supporters, and don’t fall in to the trap of underestimating his political ability.
A Critical Analysis of the Google Decision
Introduction
Judge Amit Mehta’s decision in the Google Search case[1] is commendable in many respects. He seems to strive to credit counterarguments wherever doing so is sensible, rather than trying to “bullet-proof” his opinion (as other “Big Tech”-related decisions often do) by discounting every argument put forward by Google. He is not gratuitously dismissive of Google’s experts. And, as he did in dismissing the entirety of the states’ “self-preferencing” claims at summary judgment,[2] he is willing to reject various of the plaintiffs’ arguments here—finding, for example, that some of their proposed relevant markets were not relevant markets and/or that Google was not a monopolist in them. The decision is also very clearly written and, at 275 pages, admirably thorough.
That’s the good. Unfortunately, where it counts the most, Judge Mehta’s decision is seriously lacking, to the point that his primary legal conclusion—that Google’s default search distribution deals were anticompetitive—is untenable. In this paper, I explain why.
I. The Core Legal Defect: Misapplication of the Causation Standard for Exclusionary Conduct A. Misreading Microsoft I start with a quote from the decision that brings us directly to the heart of the matter. Quoting the D.C. Circuit Court of Appeals’ decision in Microsoft,[3] Judge Mehta holds that, as a matter of law:
[C]ausation does not require but-for proof. The plaintiff is not required to show that but for the defendant’s exclusionary conduct the anticompetitive effects would not have followed. Such a standard would create substantial proof problems, as “neither plaintiffs nor the court can confidently reconstruct… a world absent the defendant’s exclusionary conduct.” “To some degree, ‘the defendant is made to suffer the uncertain consequences of its own undesirable conduct.’”[4]
But, as Judge Ginsburg—widely regarded to be the primary author of the per curiam Microsoft opinion—has written, that is a misreading of Microsoft.[5] In fact, this decision—this case—is the paradigmatic example of why that is a misreading of Microsoft.
As a general matter, the plaintiff must establish that the defendant’s conduct has the “requisite anticompetitive effect”[6]—that is, that it caused the alleged competitive harm.[7] The “reasonably capable of” standard has “limited applicability”[8] and permits an inference of causation only in special circumstances: 1) when the competitive threat allegedly affected by the defendant’s conduct is nascent; 2) when that conduct was already proven to have anticompetitive effect; and 3) in a government (as opposed to private) enforcement action.[9] “Only when these conditions are met may the government avoid having to show that the threat would have become a real competitor but for the alleged exclusionary conduct.”[10]
The intuition behind this is as follows: There might be multiple reasons—including ones not involving the defendant’s exclusionary conduct—that prevent a competitive threat from materializing. Normally, a plaintiff has to show that the defendant’s conduct—and not one or more of these other factors (like, e.g., that the rival was of such low quality that it couldn’t realistically have mounted a real challenge)—was the but-for cause of the challenger’s failure. But where that threat is inchoate, proving the hypothetical course of future competition in the market is effectively impossible. Thus, in circumstances where we’re confident that lessening the plaintiff’s burden won’t systematically lead to erroneous outcomes, we allow it to make out its prima facie case without demonstrating but-for causation:
The court pointed out that “neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical technological development in a world absent the defendant’s exclusionary conduct.” Given this “underlying proof problem,” the Court may infer causation.[11]
According to Judge Ginsburg’s clarification of what the Microsoft court held, the limited circumstances that satisfy this standard are: 1) as noted, the threat is of the sort that can’t actually be proven—that is, the allegedly thwarted competition must arise from a speculative, but realistic, process that can’t be falsified; 2) the defendant’s conduct must be proven to be, in fact, sufficient to impede the materialization of such a threat (“[o]f critical importance is that the court’s causation standard was conditioned on its having found anticompetitive effects”[12]); and 3) the plaintiff must be a government enforcer.[13]
Obviously, the Google Search case involves a government enforcement action. But for Microsoft’s lighter causation standard to apply, it must also involve a nascent threat and conduct proven sufficient to prevent rivals from achieving minimum efficient scale. Arguably, neither is true in Google Search.
The holding in Microsoft that causation need not be perfectly proven was a function of those specialized facts. It was not, contra Judge Mehta’s approach to this case (and that of many others before him), “a matter of general tendency.”[14]
1. Causation may be inferred only when the competitive process is speculative The key question in Microsoft was the foreclosure of competition by a nascent competitor—where the entire theory of the case was built on a set of suppositions about the progress of technology, speculation about the unpredictable role the nascent competitor could play in disrupting competition in an established market, and uncertainty about whether Microsoft viewed it (Netscape Navigator) as a competitive threat.
That is not really the case in Google Search. Bing, obviously, and Yahoo! and others before and after it are/were not nascent competitors. Nor is Bing bringing an innovative disruption to the market that will follow an unknown course. Rather, it is a direct, close substitute for Google Search. And, of course, this is obvious to Google. It is distributed the same way; it is used the same way; it is not unknown or uncertain in its competitive relationship with Google Search. None of which means it was actually a competitive threat to Google (more on this later). But it does mean that the competitive process is well understood.
Why does this matter? Because it means that much less speculation is required about whether and how Bing could act as a competitive constraint on Google. We do have actual competition and consumer behavior to assess in understanding the extent of its competitive threat and whether Google’s challenged conduct impaired it. And we do not have to create an entirely hypothetical world in which establishing causation would be impossible.
None of that was true in Microsoft.
We know this, in part, because of another case the same court decided a few years after Microsoft: Rambus v. FTC.[15] With respect to the speculative extent of the but-for world and the viability of demonstrating causation, the facts in Rambus are more similar to the facts here than are the facts in Microsoft. In Rambus (which involved the selection by a standard-setting organization (SSO) of technology to be included in an industry standard) competition was direct and well-understood. The sole question was whether Rambus’s conduct (deception over its patent holdings, which led to the inclusion of its technology in the industry standard) enabled its technologies to monopolize the relevant markets to the exclusion of its rivals, or whether, had it disclosed and the SSO obtained assurances it would license its technology on RAND terms, it would still have obtained its dominant market position.
Of course, in Rambus—as everywhere—it was impossible to truly know the but-for world (i.e., what Rambus’s market position and that of its competitors would have looked like under different licensing terms). But the competitive process by which such an outcome could arise was straightforward, and its competitive alternatives were known. The same could not really be said of Microsoft.
B. Misreading Rambus In Rambus, the question was whether Rambus’s behavior led to the exclusion of rivals, or whether, even absent its behavior, rivals would have been excluded. That is the identical question that should have been asked here: Was Bing’s failure to gain more market share proved to be a function of Google’s distribution deals, or was it a function of consumer and distributor preferences for Google over its rivals?
As the court in Rambus found, the FTC’s reasoning (from which the court heard the appeal) was logically flawed, in exactly the same way the court’s reasoning is flawed in this case. It is therefore odd that Judge Mehta distinguishes Rambus and rejects the applicability of its legal standard on grounds that are superficial and unrelated to the relevant question of when a given legal standard should apply.
The consequence of this decision for the Google Search case was enormous. By relieving the plaintiffs of having to show but-for causation, Judge Mehta relieved them of the burden of proving their case. This is exactly why Rambus is so important.
1. What Rambus Says So, here’s what the court said in Rambus. First, the court laid out the standard:
The critical question is whether Rambus engaged in exclusionary conduct, and thereby acquired its monopoly power in the relevant markets unlawfully.
To answer that question, we adhere to two antitrust principles that guided us in Microsoft. First, “to be condemned as exclusionary, a monopolist’s act must have ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58…. Second, it is the antitrust plaintiff—including the Government as plaintiff—that bears the burden of proving the anticompetitive effect of the monopolist’s conduct. Microsoft, 253 F.3d at 58-59.[16]
Applying these principles, however, the implication of the FTC’s argument was ambiguous:
The Commission’s conclusion that Rambus’s conduct was exclusionary depends, therefore, on a syllogism: Rambus avoided one of two outcomes by not disclosing its patent interests; the avoidance of either of those outcomes was anticompetitive; therefore Rambus’s non-disclosure was anticompetitive.[17]
The Rambus court acknowledged that the first of these possible outcomes would be anticompetitive,[18] but on the second it found the causal link unclear.[19] And because this alternative was not inherently anticompetitive, the Rambus court rejected the FTC’s argument based on its failure to prove that Rambus’s conduct, and not simply its inclusion in the standard (even on less-favorable terms), led to its market position:
Here, the Commission expressly left open the likelihood that [the SSO] would have standardized Rambus’s technologies even if Rambus had disclosed its intellectual property. Under this hypothesis, [the SSO] lost only an opportunity to secure a RAND commitment from Rambus. But loss of such a commitment is not a harm to competition from alternative technologies in the relevant markets….
…Thus, if [the SSO], in the world that would have existed but for Rambus’s deception, would have standardized the very same technologies, Rambus’s alleged deception cannot be said to have had an effect on competition in violation of the antitrust laws.[20]
If the court was correct that only one of the two outcomes was anticompetitive, then its conclusion was inescapable. As Josh Wright has long (since 2009) maintained, “the D.C. Circuit’s causation standard [in Rambus] should not be controversial and appears eminently reasonable.”[21]
Both the Commission and the D.C. Circuit accept that there must be a causal showing that deception significantly contributes to some anticompetitive effect. The disagreement is over whether both possible paths actually involve anticompetitive effects. If one agrees with the Commission that both causal paths violate Section 2, a requirement that a plaintiff specify precisely which path resulted in an anticompetitive effect is unnecessary and likely unwise. However, if one believes that only one causal path constitutes a violation of Section 2, such a requirement is necessary….[22]
Importantly, the Rambus court held this despite recognizing that Rambus’s deception made the inclusion of its technology in the standard “somewhat more likely.”[23] That wasn’t enough, because the FTC failed to show that that wouldn’t have happened even without—that is, but for—Rambus’s deception. “The critical point is that the Commission bore the burden of demonstrating that Rambus’s deception caused the unlawful acquisition of monopoly power.”[24]
C. Misconstruing the Legal Standard Under Microsoft and Rambus Here, we can rewrite Rambus’s conclusion using the facts of the Google Search case and readily see its applicability:
Thus, if [distributors like Apple and Mozilla], in the world that would have existed but for [Google’s default distribution deals], would have [chosen] the very same [default search provider], [Google’s conduct] cannot be said to have had an effect on competition in violation of the antitrust laws.[25]
This is not how Judge Mehta assesses the Rambus decision, however. Instead, he distinguishes it on the tenuous grounds that it involved a different type of exclusionary conduct, in a different factual setting, and that, as a result, it is inconsistent with his reading of Microsoft:
Rambus does not establish a categorical rule that the anticompetitive effects of an exclusive agreement must be measured against a but-for world. That case involved deception to a standards-setting organization, a form of exclusionary conduct particularly susceptible to a finding of materiality…. In such circumstances, the D.C. Circuit deemed it appropriate to demand proof that Rambus’s deception in fact resulted in competitive harm. Nowhere, however, did the court suggest that such a strict standard of proof was required to demonstrate anticompetitive effects for other forms of exclusionary conduct, particularly exclusive dealing arrangements. Such a holding would be contrary to Microsoft, and the court in Rambus nowhere questioned that precedent. Rambus therefore does not require Plaintiffs to prove substantial foreclosure against a but-for world.[26]
But “deception to a standards-setting organization” is not a circumstance “particularly susceptible” to a but-for analysis compared to that of default search distribution deals. Indeed, it has more in common with the circumstances here than Microsoft does. That’s because, as noted, the but-for world in that case is easy to understand and analyze (even if, as in all cases, the but-for world is never a simple or certain calculation). It is in the Google Search case, as well. The but-for world in this case, as in Rambus, involves an essentially binary choice among known alternatives with a direct line between the relevant conduct and that choice. In Rambus, it was a choice by an SSO between two licensing regimes (one less restrictive, and one more restrictive) for Rambus’s patents in its standards, and Rambus’s deception could clearly affect that choice. Here, it is a choice by users between (essentially) two search engines, and the choice of default search provider can clearly affect that choice (because the cost of using the non-default is inherently higher).
Moreover (and as noted above), according to Judge Ginsburg, Rambus is not a special exception to Microsoft’s general rule; Microsoft is a special exception to Rambus. It is the nascency of the threat in Microsoft (which didn’t exist in Rambus) that leads to its uniquely truncated analysis and not the specific context of Rambus that somehow cabins its applicability:
Reading Microsoft and Rambus together, the key takeaway is that only when anticompetitive effects are shown (as required by Microsoft and Rambus) does the “reasonably capable of” causation standard apply to allegations that exclusionary conduct killed a nascent threat. Only when these conditions are met may the government avoid having to show that the threat would have become a real competitor but for the alleged exclusionary conduct.[27]
Nevertheless, misconstruing the legal standard under Microsoft and Rambus, Judge Mehta holds that Microsoft’s lighter, “reasonably capable of” standard applies:
The key question then is this: Do Google’s exclusive distribution contracts reasonably appear capable of significantly contributing to maintaining Google’s monopoly power in the general search services market? The answer is “yes.” Google’s distribution agreements are exclusionary contracts that violate Section 2 because they ensure that half of all GSE [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices, as well as cause additional anticompetitive harm.[28]
D. How We Know It Is Wrong
It is immediately obvious why, even if it weren’t a misreading of the case law, this cannot possibly be the correct standard—and why it makes no sense to suggest that a less strict standard of proof is particularly appropriate for exclusive-dealing arrangements.
We don’t need to ask if the agreements “reasonably appear capable of significantly contributing to maintaining Google’s monopoly power” because of course they are “reasonably… capable” of contributing to Google’s monopoly power. That’s why we have scores of antitrust cases looking at the effects of distribution agreements. If all that were required to win such a case were the reasonable capability of an agreement to contribute to a dominant firm’s competitive position, then no exclusive or quasi-exclusive agreement would ever be legal.[29]
We ask whether exclusive agreements “reasonably appear capable” of maintaining monopoly, instead of asking whether they actually maintained monopoly, only when the connection between what is being excluded and monopoly maintenance is unclear—as in Microsoft, where it was unclear if Netscape Navigator could actually constitute a competitive threat to Microsoft’s operating-system dominance. But here that is not a question.[30] Where the rival is a direct competitor with a close substitute product, an exclusive deal by a dominant incumbent is always capable of foreclosing the rival. In such circumstances it is simply not consistent with the plaintiff’s burden of proof to allow them to show only that the challenged conduct is the sort that could maintain monopoly, rather than that the defendant’s conduct in fact caused anticompetitive harm.
Difficult as it may be, demonstrating this in an actual competition case like Google Search is not impossible. Indeed, as I discuss below, there is copious evidence in the case that the cause of Bing’s limited market share was not Google’s default distribution deals, but Bing’s lack of quality. Any comparable evidence in Microsoft would have been wholly speculative—but not here.
As Judge Ginsburg notes (again challenging the general applicability of Microsoft’s truncated legal standard):
As in Microsoft, the “but-for” world in Rambus was highly uncertain.[[31]] In both cases, one could reasonably find the defendant’s conduct may have caused the defendant to acquire or maintain its monopoly power. At the same time, it was also possible that the defendants in those cases would have acquired or maintained their monopoly power even absent their anticompetitive behavior. The court in Rambus held the government must bear the burden of that uncertainty. This burden applies in all Section 2 cases….[32]
But it is also arguably the case that, properly construed, Google’s default distribution deals were not capable of excluding Bing from the market. We turn to this next.
II. The Failure To Prove That Defaults Are Exclusive Judge Mehta holds that Google’s distribution deals had anticompetitive effects “because they ensure that half of all [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices.”[33] He derives this conclusion (which he repeats several times) from the testimony of one of the plaintiffs’ economic experts, Michael Whinston, who finds that “50% of all queries in the United States are run through the default search access points covered by the challenged distribution agreements.”[34]
Judge Mehta’s claim is that, because users don’t switch away from defaults very often, and because the “market realities” of the search market—given Google’s default distribution deals—are that half of all relevant searches occur through access points covered by those deals, we can conclude that those deals foreclose competitors from 50% of the general search market (a big enough amount to constitute anticompetitive foreclosure).
But this is not how you measure foreclosure, and the assertion that that number shows that Google’s default deals—and not something else—“significantly contribut[e] to maintaining Google’s monopoly power”[35] is fallacious.
Just because the government shows there is “significant” usage of Google’s default services ex post—meaning, given Google’s default deals, and after consumers have chosen which search engine to use—does not mean it has proven that 50% of the market was foreclosed from access by competitors. Nor does it mean that the government has met its burden of proving that this was caused by the agreements. Perhaps all of those consumers are inframarginal consumers who would have chosen Google Search anyway, even if it weren’t the default. Perhaps all of them were perfectly capable of accessing Bing, but simply chose not to. In that case, the ex-post usage data would tell us nothing about the extent of foreclosure.
Demonstrating foreclosure requires comparison to the but-for world; it requires showing that, absent Google’s deals, Bing would have had access to and been used by substantially more marginal consumers (those who view Bing and Google as effective substitutes and wouldn’t expend extra cost to use one search engine or the other).[36] This is so for three reasons.
First, these agreements are not, in fact, “exclusive.” That matters, because it is much harder to infer that it was the agreements, and not consumer preferences for a particular product, that caused Google’s dominance when consumers have ample opportunity to exercise their preferences to not use Google Search.
Second, and relatedly, looking at the share of searches ex post that go through these defaults is less telling, and the number can’t simply be accepted at face value, when searching via the default service is not the only option. As in Rambus, Google’s maintenance of a large share of these searches is just as consistent with a non-problematic set of facts (consumers simply prefer Google Search and, knowing that, distributors offer Google as the default) as with a problematic one (consumers use Google Search only because it is the default service, and distributors offer Google Search as the default only because Google pays them to do so).
Finally, failing to demand that the plaintiffs demonstrate that Google’s default distribution deals actually foreclosed competitors, and allowing them effectively to prove their case by showing only that the deals made Google’s large market share “somewhat more likely,”[37] erases the requirement that plaintiffs can win only if they prove that challenged conduct causes anticompetitive harm. This is an invitation for dramatically erroneous decisions.[38] As Judge Ginsburg and Koren Wong-Ervin write:
Without requiring proof of but-for causation, there is great risk of erroneously condemning [conduct] that may be procompetitive. Consider, for example, Herbert Hovenkamp’s proposal presumptively to condemn acquisitions by a monopolist of “any firm that has the economic capabilities for entry and is a more-than-fanciful possible entrant, unless the acquired firm is no different from many other firms in these respects.” “More-than-fanciful” is an invitation to speculate, not a standard of proof.[39]
Let’s examine these problems with Judge Mehta’s legal standard based on Michael Whinston’s market-share numbers a little more thoroughly.
A. Establishing the Amount of Competition: Minimum Efficient Scale So much of Judge Mehta’s conclusion that Google’s default deals were exclusive (despite not actually being “exclusive”) turns on his contention that defaults are the best way for search engines to distribute themselves,[40] and, therefore, that Google tying up default access was sufficient to establish the requisite exclusivity for an exclusive-dealing claim.
But as the Rambus court points out, “conduct [does] not violate antitrust laws where absent that conduct consumers would still receive the same product and the same amount of competition.”[41] This is a statement that the but-for world matters, and the relevant question is the relative “amount of competition.”
So, how do we measure the “amount of competition”? Well, we can’t measure it as Judge Mehta and Prof. Whinston do, by looking at what people choose ex post.[42] This is a fairly useless statistic. It says next to nothing about what share of marginal searchers use Google because it is the default, and what share use Google because they prefer it. (And, of course, it says nothing about what share are inframarginal consumers who would use Google regardless of the cost of accessing it). That, in turn, tells you nothing about the amount of competition that existed before they made their choices.[43]
Nor can we simply look at the scope of the default distribution agreements. If people can still easily choose other search providers despite the default deals, those deals cannot be said to foreclose competition—at the very least, not in proportion to the share of the market covered by those deals.
We can, however, examine whether rival search providers were able to achieve minimum efficient scale in such an environment—that is, whether the conduct at issue was capable of precluding otherwise viable competitors from gaining enough customers to sustain themselves as a competitive alternative. Indeed, this is exactly what Google argued was required: “[Google] contends that Plaintiffs have failed to establish a link between the agreements, the denial of sufficient scale to rivals, and anticompetitive effects….”[44] It is also what Judge Ginsburg says is required: “The court [in Microsoft] inferred harm to the competitive process from these findings, in essence recognizing that minimum-efficient scale is the mechanism by which exclusionary conduct harms competition.”[45]
Yet nowhere does Judge Mehta effectively grapple with the minimum-efficient-scale question. He does discuss the importance of scale in search, and he holds that Google is of higher quality than Bing and other competitors, in part, because of its scale. But he never really asks or answers the questions 1) whether this difference is uniquely attributable to Google’s default distribution deals, and 2) whether those deals preclude rivals from effectively competing, or simply make it harder for them to compete because they raise the cost of achieving comparable quality.
Now, the evidence here, as far as we can assess it from the decision, is not entirely clear-cut. But the answer isn’t really the issue. The real issue is that this is an essential question, on which the government bears the burden of proof, and it was simply missing from the opinion. In other words, this means the holding in the government’s favor is unsupported as a matter of law.
B. De Facto Exclusivity
Even so, let’s assess how well the evidence supports the conclusion that the default deals were really “de facto” exclusive, and that they prevented rivals from achieving the minimum efficient scale.
We have no idea if the default deals had anything to do with it, but we do know that Neeva, a once-promising general search engine, apparently had a hard time competing for users and went out of business after about four years.[46] On the other hand, Bing, Yahoo!, DuckDuckGo, Ecosia, and Brave all exist and continue to compete in this environment. Yes, they have relatively small market shares, but apparently they have enough scale for viability.
Similarly, on the one hand, there has been clear “competition for the market” between Bing and Google with respect to the default access points on Apple devices and in Mozilla’s Firefox browser. On the other hand, there is less clear competition with respect to Android OEMs (in Google’s favor)—but there is also less clear competition (actually, there is none) between them for default placement in Edge (in Bing’s favor).
1. Misunderstanding the ‘power of defaults’ With respect to the conclusion that the cost to users of choosing the non-default option is higher, that is inherently true, of course. But it is arguably trivially so. Judge Mehta spends a fair amount of time on this question (although not in the proper context of this but-for assessment) before arriving at his conclusion that being a non-default is tantamount to being excluded. His analysis, however, is unconvincing.
First, the analysis is heavily influenced by the assertions of the government’s behavioral expert, Antonio Rangel.[47] As I will discuss below, some empirical data specific to the context at hand is used to bolster the more general behavioral claims of the government’s expert (which I believe cuts in many respects against Judge Mehta’s conclusions). But it is clear that any ambiguity was resolved by Judge Mehta in favor of asserted general behavioral patterns:
That users overwhelmingly use Google through preloaded search access points is explained in part by default bias or the “power of defaults.” The field of behavioral economics teaches that a consumer’s choice can be heavily influenced by how it is presented. The consensus in the field is that “defaults have a powerful impact on consumer decisions.”[48]
There are access points other than the default that can be used to distribute a GSE, but those channels are far less effective at reaching users. That is due in part to users’ lack of awareness of these options and the “choice friction” required to reach these alternatives.[49]
[A]s Dr. Rangel convincingly explained, the combination of user habit, Google’s brand, and choice friction creates a powerful default effect that drives most consumers to use the default search access points occupied by Google.[50]
The main problem with this is not so much that behavioral science is wrong (surely, it is correct that the more friction there is to switch from a default, the less likely someone will switch), but that it is not dispositive. This makes it a weak basis for meeting the plaintiffs’ burden. It is also not clear that general behavioral theories have the same traction in the specific environment at issue. As my colleague Dan Gilman has discussed, the learnings of behavioral science were established in settings quite different than search engine defaults.[51] “Generalizing findings from, e.g., cereal-box placement to the durability of search engine defaults seems a stretch (or entirely speculative).”[52]
To be sure, Rangel’s testimony did purport to apply those learnings in context.[53] But what really matters in this case is not the direction of the behavioral assumptions, but the magnitude. (Again, no one disputes that defaults grant some benefit, nor that promoting one’s products—i.e., marketing—can influence consumer choice). The claim here is that the availability of switching does not sufficiently negate the effective exclusivity of defaults to permit rivals to compete. That claim depends on the extent to which users tend not to switch away from defaults, not just the fact that they sometimes don’t.
Among other things (more of which are discussed below), it must be noted that, even when users are presented with a neutral option (e.g., a “choice screen”), they appear to make essentially the same choices as when presented with a default. In Europe, where Google has since 2020 implemented a search engine choice screen on Android following the EU’s 2018 antitrust decision against it,[54] Google’s share of the search engine market has barely budged.[55]
By the same token (at least when Google is the non-default) users are apparently quick to switch from a less-preferred default in order to get access to Google Search:
In a 2016 experiment, Mozilla switched the default GSE on both new and existing users from Google to Bing. By the twelfth day, Bing had kept only 42% of the search volume. After some additional time, those numbers dropped to 20–35%….[56]
It is exceedingly difficult to square these facts with the court’s conclusions on the functional irrelevance of non-default options.
C. Overlooking Evidence of User Switching Behavior and Impressionistic, Not Quantitative, Conclusions The majority of the decision’s discussion of consumers’ behavior around defaults is largely impressionistic, not quantitative. For example, Judge Mehta notes that:
Another non-default search access point is the bookmarks page on a browser. The Safari “Favorites” page, for instance, contains preloaded icons to access Google, Bing, and Yahoo. A user also can add a new search engine on that page. But few consumers use this channel, as it first requires finding the Favorites page in a new Safari tab, which requires an “extra click.” Google itself receives only 10% of its searches on Safari through the bookmark.[57]
Strictly speaking, 10% is “quantitative,” but the decision’s conclusions based on this data are decidedly impressionistic. Judge Mehta asserts that Google receiving “only” 10% of searches on Safari through the bookmark is an insignificant volume. But in that setting—where Google Search is already the default on Safari and can be accessed simply by typing in Safari’s URL bar, and in which it is alleged that virtually no one ever uses anything other than default search on Safari—why would there be any searches on Google via the bookmark? If that number of searches is at all different from zero, it would appear to demonstrate that it is indeed a relevant channel by which consumers can find search engines, including non-default ones. In other words, 10% may be “insignificant” as a share of Google searches, but it is quite significant with respect to the relevant legal standard.
Indeed, “nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search.”[58] Judge Mehta dismisses this by arguing that “the fact that some consumers access search on non-default access points is not dispositive on exclusivity.”[59] “Not dispositive” is not quantitative. While the statement is true, the burden of proof is on the plaintiffs, and this not being dispositive cuts against them, not against Google.
Elsewhere, Judge Mehta also rejects the actual evidence of people switching to the non-default on PC desktops. It turns out that a lot of Windows desktop users download Chrome and use Google Search there, rather than relying on Bing, which is the default search engine in the Edge browser:
To be sure, downloads of an alternative browser occur with greater frequency on Windows desktop computers. On such devices, Edge is the default browser and Bing is the default search engine. Yet, Google’s search share on Windows devices is 80%, with most of the queries flowing through the Chrome default, which means Chrome was downloaded onto the device.[60]
Despite this, Judge Mehta is quick to note that, for those users who still use Edge, Bing is the most used search engine:
The power of defaults is evident, however, from the share of Bing users on Edge. Bing’s search share on Edge is approximately 80%; Google’s share is only 20%. Even if one assumes that some portion of those Bing searches are performed by Microsoft-brand loyalists, Bing’s uniquely high search share on Edge cannot be explained by that alone. The default on Edge drives queries to Bing.[61]
One might suggest that all this shows is that people really prefer Chrome to Edge, not that they prefer Google Search to Bing enough to switch away from the default (on either browser). Except that, as the opinion points out, “Google’s dominance on Windows cannot, however, be attributed simply to the popularity of Chrome. Google had an 80% search share on Windows when Chrome first launched, and that share has remained steady ever since.”[62] If that’s the case, it can mean only that the default search on Windows desktops isn’t very sticky—and it isn’t just because users prefer Chrome to Edge; apparently it’s because they prefer Google Search to Bing.
So how does the court conclude that it supports the “power of defaults” that, of those users who don’t switch to Chrome on Windows desktops, approximately 80% use Edge’s default? If most Windows users who prefer Google Search to Bing switch from the default by downloading Chrome instead of by switching the default in Edge, then of course most of those who remain on Edge will use Bing. If they preferred Google to Bing, they would have switched to Chrome.
As Judge Mehta notes elsewhere, “[m]any users do not know that there is a default search engine, what it is, or that it can be changed.”[63] Perhaps. But then again, apparently, many users do know that Chrome gets them access to their preferred search engine. Whatever “choice friction” impedes the movement away from the default search engine on Windows desktops, it is not strong enough to prevent people from maneuvering around it in spades—they just don’t often do so directly by switching the default search engine in Edge.[64]
The opinion also brushes off these examples of default switching by asserting that they merely “confirm that the default effect is weaker when the alternative is a dominant firm with high brand recognition backed by a quality product.”[65] First, this is pretty hand-wavy and impressionistic. Maybe it’s true; in fact, I’m sure it’s true to some extent. But for an opinion that otherwise regularly says we have to look at “market realities,” not the world as it might be, this is a weak basis to conclude that evidence of people switching away from defaults doesn’t really show that people switch away from defaults.
Regardless—isn’t the ability to attract users because you are widely used, have good brand recognition, and have a demonstrably high-quality product pretty much the definition of competition on the merits? Indeed, one could recast Judge Mehta’s statement as precisely the opposite of the decision’s holding: Google’s default agreements can’t be deemed to have caused anticompetitive harm because defaults are readily overcome by high-quality, reputable alternatives.
It should also be noted (but, unfortunately, Judge Mehta doesn’t say it) that Microsoft is also a “dominant firm with high brand recognition backed by a quality product.”[66] What’s good for the goose is good for the gander: Microsoft has plenty of market heft to ensure that its products don’t languish in obscurity in the face of consumer inertia.[67]
III. The Scale and Quality Argument: A Double-Edged Sword All of which raises the question: Is Bing a comparably high-quality product or not? Determining that seems like a pretty important prerequisite to determining whether its small market share is a function of anticompetitive exclusion or a failure to compete on the merits. Yet Judge Mehta is, at best, equivocal on this. First, he notes that:
Everyone agrees that Google’s distribution agreements did not cause Microsoft’s past underinvestment in search. Microsoft “missed” the mobile revolution and was unable to improve its browser, Internet Explorer, until it used Google’s rendering engine, Chromium. Some of Microsoft’s quality issues also were attributable to its poor index.[68]
Yet, “[u]ltimately, Microsoft committed significant capital to search.”[69] And “[t]hat investment (combined with secured distribution on Windows devices) has allowed Bing to achieve quality parity with Google on Windows desktop devices.”[70]
Elsewhere, however, Judge Mehta concludes that “Google’s exclusive agreements… deny rivals access to user queries, or scale, needed to effectively compete,”[71] and that “[t]his perpetual scale and quality deficit means that Microsoft has no genuine hope of displacing Google as the default GSE on Safari. As Apple’s Eddy Cue testified, there was ‘no price that Microsoft could ever offer [Apple]’ to prompt a switch to Bing, because it lacks Google’s quality.”[72]
I admit that it’s unclear to me why Bing’s apparent quality parity in desktop search doesn’t redound to its benefit in mobile search. Indeed, it has to be noted that the court did not identify separate relevant markets for mobile and desktop search; it identified a single “general search services” market.[73] So, it’s a little unclear, but it seems that, according to the court, ultimately Bing simply isn’t up to Google Search’s quality standard.
A. The Failure to Distinguish Between Exclusion and Low Quality: A Catastrophic Legal Blunder The problem is that it is precisely past decisions and their alleged influence on current outcomes that the court uses to establish the proposition that Google’s default deals are anticompetitive. As I keep pointing out, however—and as Judge Mehta appears here to recognize—plaintiffs cannot meet their burden of proof that Google’s deals were exclusionary by pointing to Bing’s limited success, if the court agrees that Bing’s low quality could also have caused it. And here, Judge Mehta also concedes that those deals didn’t cause Bing’s lower quality, either (“Google’s distribution agreements did not cause Microsoft’s past underinvestment in search.”).[74]
For the court to sustain its claim that Microsoft is the appropriate guiding precedent (and thus, that the government has made its case under Microsoft’s “edentulous” legal standard), it has to be the case that Bing could have outcompeted Google on quality if not for the agreements—that is, that it “reasonably constituted [a] threat.”[75]
By conceding that Bing was unable to secure distribution deals comparable to Google’s because of its low quality, however, the opinion (and the government, of course) fails to do this. As such, they fall right into the trap explained by Greg Werden:
But if operating at a much smaller scale than Google makes rival search engines uncompetitive, their fate was sealed when Google achieved a dominant share. The government posits no scenario in which any rival search engine could have substantially closed the scale gap…. If the government’s scale contentions are fully credited, the conduct that is at the heart of the case did not maintain Google’s dominant share. And any conduct that could not have maintained dominance most likely served a legitimate purpose. One way or another, the elements of the monopolization offense cannot be established under the government’s view of the facts…. But the government does not contend that rival search engines ever posed a real threat to Google’s monopoly. Indeed, it claims to have proved just the opposite.[76]
That’s a catastrophic problem for the opinion’s holding. Nevertheless, Judge Mehta does find that Bing is not a viable competitor on mobile. Yet he refutes Google’s claim that this is because of Microsoft’s own business failures, rather than its inability to gain scale:
Google also maintains that the quantity of user data is less important than how it is used, and if its rivals had Google’s business foresight and drive to innovate, they too could win default distribution. But that position blinks reality. Apple’s flirtation with Microsoft best illustrates this point. Microsoft has invested $100 billion in search in the last two decades and its quality now matches Google’s on desktop search. Yet, Microsoft’s failure to anticipate the emergence of mobile search caused it to fall behind, and with Google guaranteed default placement on all mobile devices, Microsoft has never achieved the mobile distribution that it needs to improve on that platform.[77]
Isn’t Microsoft’s “failure to anticipate the emergence of mobile search” precisely the sort of competitive failure that Google is talking about? How is Microsoft’s diminished scale attributable to Google’s conduct if it was Microsoft’s independent business decisions that denied it the ability to compete effectively?
This is exactly why a plaintiff must prove that the defendant’s conduct, and not an excluded rival’s own mistakes, were the cause of the rival’s inability to compete. Otherwise, the law would be enlisted to rectify competitors’ poor business decisions, rather than to protect the competitive process.
1. Even Judge Mehta knows ‘reasonably appears capable of’ is the wrong standard It also bears noting that Judge Mehta already—and properly—threw out exactly this sort of claim on summary judgment when he dismissed the plaintiff states’ claims that “Google’s targeting of SVPs [specialized vertical providers] caused anticompetitive effects in the proposed markets.”[78] But the basis on which he did so is shockingly at odds with the basis for his decision in the government’s favor in this case. Citing Microsoft, in fact, Judge Mehta held in his summary judgment opinion that:
Speculation that Google’s conduct “can reasonably be expected,” “might,” or “could potentially” degrade SVPs and make them less attractive partners to Google’s rivals is not evidence of anticompetitive effects in the relevant markets. Plaintiffs are required to show with proof “that the monopolist’s conduct indeed has the requisite anticompetitive effect,” and they have fallen well short.[79]
And, as he notes elsewhere in his summary judgment opinion, also citing Microsoft, “[t]he sole issue for the court to resolve is whether Google has maintained monopoly power in the relevant markets through ‘exclusionary conduct’ as opposed to procompetitive means.”[80]
The words “can reasonably be expected”—rejected by Judge Mehta in his summary judgment decision—might ring a bell, as they are awfully close to the “reasonably appear capable of” standard adopted by the court in this decision.
B. Less-Efficient Channels of Distribution: Misapplying Microsoft Again Finally, there is another problem with the legal sufficiency of the exclusivity claims, and it stems, once again, from a misapplication of Microsoft.
Judge Mehta claims that “mere user access to these less efficient channels of distribution does not render the browser agreements non-exclusive.”[81] A significant part of the defense of this position turns on an analogy to Microsoft and the argument there that it was sufficient that Microsoft foreclosed access to the best method of distribution. Indeed, the next sentence after the quote above is, “Microsoft again illustrates the point.”[82] But does it?
Judge Mehta says this case is the same as Microsoft where the court “reject[ed] the argument that Microsoft’s licensing agreements with OEMs were not exclusive ‘because Netscape is not completely blocked from distributing its product,’ as ‘although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones.’”[83] He then asserts that “[t]he record here resembles that in Microsoft. Users are free to navigate to Google’s rivals through non-default search access points, but they rarely do.”[84]
But this elides a couple of key things.
First, the Microsoft court didn’t look ex post at what consumers did (which, as I tire of pointing out, could be attributable to either anticompetitive conduct or consumer preferences); it looked at which channels of distribution were available and if they were viable substitutes, regardless of whether they were actually used or not.
The analogy to Microsoft fails most obviously on the point that the “market realities” have changed a lot since the late 1990s. Downloading Netscape from the internet was wholly unfamiliar, exceedingly complex, and truly difficult for PC users back then—a real “choice friction” and thus not really a viable alternative. But downloading a competing search engine or browser today is trivially easy, and users do it all the time (to the tune of 12.6 billion app downloads in the United States in 2023 alone).[85] In this environment, the fact that users don’t download or use competing general search engines sufficiently to displace Google Search despite the ease of doing so suggests that it is consumer preference for Google Search, not the relative inefficiency of the channel of distribution, that causes this result.
Instead, Judge Mehta concludes that, while “a user can download Chrome, Edge, or [DuckDuckGo] onto an Apple device,” “[t]his, too, is not an easily accessible search point, as it involves similar choice friction as acquiring a search application. Google receives only 7.6% of all queries on Apple devices through user-downloaded Chrome.”[86]
Not only is downloading an application trivially easy, but the fact that Google receives only 7.6% of search queries on Apple devices through Chrome, but “most”[87] of its queries on Windows desktops through user-downloaded Chrome is decidedly ambiguous. Maybe that shows that people download Chrome on Windows not to get easy access to Google Search but because the Chrome browser is superior to the Edge browser, while it is not any better than Safari. But it is also consistent with the conclusion that people aren’t prevented from accessing their preferred search provider (Google Search)—they just don’t need to download Chrome on Apple devices to get easy access to it, while they do need to do so on Windows devices.
Second, the opinion says that “[t]he court in Microsoft did not say that these contracts caused zero market foreclosure merely because Internet Explorer had other, less-efficient means of reaching users.”[88] True. But the court in Microsoft also didn’t say that any amount of difference in distribution efficiency was sufficient to maintain that a non-exclusive agreement was effectively exclusive. As noted, it is now trivially easy to switch search providers on virtually every platform and at multiple decision points on each. Defaults don’t prevent that, and prioritized placement (from, e.g., a spot on the Android home screen) doesn’t even crowd out alternatives once they are downloaded (which can then be similarly accessed from priority positions on the home screen). “Very slightly less efficient” could still be “efficient.” The fact that the difference between the foreclosed and available channels of distribution in Microsoft was large enough to matter does not mean that the difference between them in Google Search is big enough to matter.
1. So, Dentsply is good law, but Rambus isn’t? In response, Judge Mehta goes back to ex post user conduct to hold that the fact that users don’t often use these alternatives shows that the difference does matter here, and that Google’s default distribution deals are effectively exclusive and lead to foreclosure:
Sure, users can access Google’s rivals by switching the default search access point or by downloading a rival search app or browser. But the market reality is that users rarely do so. The fact that exclusive agreements allow users to reach rivals through other means does not make the foreclosure number zero.[89]
But it cannot be a sufficient argument that “the market reality is that users rarely do so.” That market reality is exactly what is at issue in the case. Using the lack of user uptake from trivially easy alternative distribution channels as evidence that those alternative distribution channels aren’t relevant assumes the conclusion. It’s poor legal reasoning.
Judge Mehta is correct, however, that “‘[t]he mere existence of other avenues of distribution is insufficient without an assessment of their overall significance to the market.’”[90] If only he had demanded such an assessment.
The Dentsply case that Judge Mehta cites for this proposition was (in my opinion) wrongly decided. It shouldn’t be held up as the standard of analysis and, in any case, it was in the 3rd U.S. Circuit Court of Appeals and not binding precedent. But even so, Dentsply dealt with exclusive agreements that included a term explicitly prohibiting authorized distributors from selling rivals’ products, thus arguably making it extremely difficult for those products to be accessed by the ultimate consumer. This case is different. None of Google’s agreements include terms prohibiting its counterparties from dealing with anyone else. And here, competing products are available to the ultimate consumer, and they show up on users’ devices in locations virtually identical to Google’s.
In any case, the Dentsply court does not rely on ex-post uptake to support its claim that alternative distribution channels are insignificant (although it does look at that statistic on occasion). Instead, it describes in detail the qualitative differences between the channel of distribution foreclosed by Dentsply and the alternatives, finding that the alternatives are decidedly less attractive. Here, by contrast, the only thing that distinguishes default placement from the other channels of distribution is alleged “choice friction.” Otherwise, they are, quite literally, identical (or, as in the difference between, say, search bar integration and a home-page bookmark, trivially different). That makes assessing their “overall significance to the market” dependent on what is being distributed, and not solely the channel of distribution itself.
2. In fact, we know from other parts of the decision that ‘less-efficient’ alternatives can’t be dismissed Later, also quoting Dentsply, Judge Mehta asserts that:
In the end, Google’s dismissal of the importance of scale is inconsistent with market realities. Google often warns that competition is “only a click away.” However, “[t]he paltry penetration in the market by competitors over the years has been a refutation of [that] theory by tangible and measurable results in the real world.”[91]
This misses the mark for the same reason. There is plenty of evidence to demonstrate that competition is just a click away. In fact, some of it was evidence the court used to exclude specialized vertical search providers (e.g., Amazon and TripAdvisor) from the relevant market. Without challenging that conclusion here (although I do think it has problems), it appears eminently “tangible and measurable” to the question of whether users will switch to alternative search engines that, when the alternative is demonstrably superior for the query at issue, they do so in droves:
Google views competition from SVPs as “intense for commercial clicks.” A 2020 Bank of America study reported that 58% of users search Amazon first when they seek to make an online purchase, as opposed to only 25% who go first to Google, demonstrating Google’s secondary status as a starting point for users with high commercial intent….
…Microsoft recognizes that “if Bing or Google were not doing vertical searches well, or at least not having organic results that people could click to get to vertical search engines,” users might bypass GSEs and instead search directly on Amazon from the outset….
…[A]nalysis show[s] that a query sample of Google’s top 25 non-navigational shopping queries attracts more queries weekly on Amazon (3.7 million) than Bing (0.4 million)…, [and] that Yelp’s local query volume is higher than Google’s and much higher than Bing’s.[92]
None of these alternative vertical search engines is installed as the default. And yet, when consumer preference is strong enough—when they produce better results—consumers have no trouble using them. Whether or not this is sufficient to affect the court’s relevant market or market-share analysis, it is surely enough to demonstrate that users are not locked into defaults when the “choice friction” required to switch from them is small relative to the benefit. That, in turn, is a function of the quality of the search provider, not the method by which it is accessed.
IV. Getting It Wrong on the Substantiality of Foreclosure, Too The “substantiality” of foreclosure must also be briefly addressed, for similar reasons. While the opinion downplays its significance as a search engine distribution channel, Windows desktops constitute a substantial share of the distribution market. Windows accounts for 64% of desktop operating systems and almost 30% of all operating systems across all platforms in the United States.[93] On these devices, Bing is the default search engine. So, right out of the box, the share of the market that Google could even possibly foreclose is reduced by Windows’ 30% market share.
Of the remaining 70%, we know that small but non-trivial portions are not actually foreclosed to competitors. We know this from the ex-post data showing, for example, that “5.1% of all searches on iPhones are conducted on a GSE other than Google [where it is the default].”[94] We also know that, on Android, “[a]lthough OEMs must preload the Google Search Widget, users can delete it. As of 2016, there were about 200,000 logged widget deletions daily.”[95] Also, “Samsung already preloads a second browser—its proprietary S browser—on all Samsung devices.”[96]
We also know that “nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search.”[97] Of course, a great number of these searches are performed on Google Search anyway.[98] But these are searches performed by users who demonstrably navigate around the default. By definition, they are not foreclosed to Google’s competitors.
Indeed, simultaneous with the Google default deals, Bing is, in fact, distributed by these counterparties to Google’s deals. Thus, as the result of an agreement with Microsoft, Bing shows up as an option on Safari’s homepage and on the Safari “Favorites” page, “which contains preloaded icons to access Google, Bing, and Yahoo.”[99] Mozilla has a “this time, search with” feature on Firefox “which allows users to select a different search product from its ‘Awesome Bar’ for a given query.”[100]
Again, Android is actually a somewhat unique case, and there the absence of true foreclosure is almost entirely dependent on the availability of end-consumer choice (which, again, is far from irrelevant). But even if we assume zero distribution of Bing on Android devices,[101] it still has unfettered access to distribution on Windows devices and is still distributed alongside Google on Apple devices and in Firefox.
The bottom line is that, even measured by ex-post consumer behavior, rivals are not foreclosed from access to consumers. And measured by the availability of access to rival search engines (whether consumers choose to use them or not), competitors are not actually foreclosed from distribution on any devices or in any browsers at all. To be sure, the remaining effective foreclosure level could be “substantial.” But nowhere does the court’s opinion demonstrate this. As plaintiffs have the burden of proof, the existence of meaningful consumer usage and availability, despite purported exclusive agreements, should have been deemed by the court to undermine the government’s case, not support it.
V. The Fateful Conclusion that Bing Isn’t a Real Competitor and the Problem of Remedy Finally, I have to say a word on remedy here, although I do so for now only insofar as it bears on what I have been arguing; there are many other arguments about remedy that make this holding problematic. But here is one, and it hearkens back to Greg Werden’s Catch-22.[102]
The jig was up for the plaintiffs in this case once they argued that Bing was not a viable competitor to Google Search. In the world of that “market reality,” no reasonable remedy would do any good to rectify the allegedly anticompetitive circumstances. And the court accepted the government’s quality arguments pretty much wholesale:
The market reality is that Google is the only real choice as the default GSE. Apple’s Senior Vice President of Services, Eddy Cue, put it succinctly when, in a moment of (perhaps inadvertent) candor, he said: “[T]here’s no price that Microsoft could ever offer [Apple] to” preload Bing. “No price.” Mozilla stated something similar in a letter to the Department of Justice prior to the filing of this lawsuit. It wrote that switching the Firefox default to a rival search engine “would be a losing proposition” because no competitor could monetize search as effectively as Google. A “losing proposition.” If “no price” could entice a partner to switch, or if doing so is viewed as a “losing proposition,” Google does not face true market competition in search.[103]
But if “no price” could entice a partner to switch to Bing, and Bing is not truly a competitor to Google in search, then, as Greg Werden says, “the conduct that is at the heart of the case did not maintain Google’s dominant share.”[104]
The Microsoft decision relies on the contention that, although unproven, Netscape Navigator was a viable competitive threat to Windows. Thus, the government had to prove in that case that the threats to Microsoft’s operating-system monopoly were real, even if it didn’t have to prove the threats would have succeeded but for Microsoft’s conduct. The government’s burden is at least as high here.
And yet, in the quote above, Judge Mehta essentially finds that the government didn’t meet even this burden. He finds, in effect, that it wasn’t the nature of Google’s agreements that contributed to Google’s continued monopoly power; it was the fact that no distributor would ever choose Bing as the default—at any price. That conclusion means that it was Bing’s low quality that excluded it from default distribution and the reason “Google does not face true market competition in search”[105] is a function of quality, not Google’s deals.
That’s already fatal to the case. The remedy point is this: That same market reality means that no remedy prohibiting Google from entering into such agreements will rectify the situation. It means that Apple, Mozilla, Samsung, et al. will still choose Google as the default, even if Google is forbidden from paying them a revenue share (or even a set price) to do so—they will just forego the revenue from doing so, and Google will get a windfall.[106]
Yet it is hard to conceive of any other remedy that follows from Judge Mehta’s analysis in this decision. The decision is laser-focused on the determination that Google’s default distribution deals were (effectively) exclusive and thus foreclosed a substantial share of the market and deprived rivals of scale. Everything in the decision comes down to the default nature of the deals. It stands to reason that any remedy would be limited to removing the one-deal characteristic that, according to the court, makes the agreements anticompetitive.
Cutting against this somewhat is Judge Mehta’s conclusion that, having been deprived of scale by Google’s distribution deals, no rival is in a position to secure a default deal of its own.[107] But it is by no means clear from the decision that, in the absence of default deals with Google, rivals would be unable to compete effectively through other channels of distribution or compete for such deals in the future. The problem is that, because the court has no ability to prohibit Apple and Mozilla from offering default search engines without a Google deal, even prohibiting Google from entering into those deals doesn’t mean it won’t still be offered as the default, and this may not change the competitive landscape enough to enable Bing and other rivals to compete effectively.
Perhaps one might think that Google should just be compelled to share its data (and/or other “secret sauce”) with rivals so they have the quality necessary to actually win default placement deals. But that doesn’t work either. In the first place, this would be a clear acknowledgment that it is quality, not default distribution deals, that impedes rivals’ commercial success. If that is the only effective remedy, then the necessary legal basis of the holding is undermined.
Secondly, implementing that remedy would entail mandating that Google enter into deals with competitors to help them compete. This is anathema to U.S. antitrust law.[108] So much so that Judge Mehta himself threw out one of the plaintiff states’ claims in this case on exactly that basis:
Plaintiff States seek to bypass the “no duty to deal” doctrine entirely…. …The concerns that animate the no-duty-to-deal principle are equally applicable here. Primarily, adjudicating Plaintiff States’ claim would require the court to act as a “central planner” that endeavors to identify the proper “terms of dealing.” Their claim requires grappling with a host of questions that the court is ill-equipped to handle…. And those thorny questions foreshadow the challenges the court would face in administering a remedy…. A favorable outcome for Plaintiff States thus would mire the court in Google’s day-to-day operations…. The court has learned a lot about Google, but it is “ill suited” for that role.[109]
It is extremely difficult to see how Judge Mehta would countenance a forced-sharing arrangement for Google’s data as a remedy for the remaining claims in this case, given his unequivocal dismissal of other claims on precisely that basis.
As I noted, there is more to say about potential remedies in this case.[110] But for now, the most important thing is that the absence of viable remedies strongly supports the arguments I have presented here that the court’s liability finding was improper.
Judge Amit Mehta’s decision in the Google Search case[1] is commendable in many respects. He seems to strive to credit counterarguments wherever doing so is sensible, rather than trying to “bullet-proof” his opinion (as other “Big Tech”-related decisions often do) by discounting every argument put forward by Google. He is not gratuitously dismissive of Google’s experts. And, as he did in dismissing the entirety of the states’ “self-preferencing” claims at summary judgment,[2] he is willing to reject various of the plaintiffs’ arguments here—finding, for example, that some of their proposed relevant markets were not relevant markets and/or that Google was not a monopolist in them. The decision is also very clearly written and, at 275 pages, admirably thorough.
That’s the good. Unfortunately, where it counts the most, Judge Mehta’s decision is seriously lacking, to the point that his primary legal conclusion—that Google’s default search distribution deals were anticompetitive—is untenable. In this paper, I explain why.
I. The Core Legal Defect: Misapplication of the Causation Standard for Exclusionary Conduct A. Misreading Microsoft I start with a quote from the decision that brings us directly to the heart of the matter. Quoting the D.C. Circuit Court of Appeals’ decision in Microsoft,[3] Judge Mehta holds that, as a matter of law:
[C]ausation does not require but-for proof. The plaintiff is not required to show that but for the defendant’s exclusionary conduct the anticompetitive effects would not have followed. Such a standard would create substantial proof problems, as “neither plaintiffs nor the court can confidently reconstruct… a world absent the defendant’s exclusionary conduct.” “To some degree, ‘the defendant is made to suffer the uncertain consequences of its own undesirable conduct.’”[4]
But, as Judge Ginsburg—widely regarded to be the primary author of the per curiam Microsoft opinion—has written, that is a misreading of Microsoft.[5] In fact, this decision—this case—is the paradigmatic example of why that is a misreading of Microsoft.
As a general matter, the plaintiff must establish that the defendant’s conduct has the “requisite anticompetitive effect”[6]—that is, that it caused the alleged competitive harm.[7] The “reasonably capable of” standard has “limited applicability”[8] and permits an inference of causation only in special circumstances: 1) when the competitive threat allegedly affected by the defendant’s conduct is nascent; 2) when that conduct was already proven to have anticompetitive effect; and 3) in a government (as opposed to private) enforcement action.[9] “Only when these conditions are met may the government avoid having to show that the threat would have become a real competitor but for the alleged exclusionary conduct.”[10]
The intuition behind this is as follows: There might be multiple reasons—including ones not involving the defendant’s exclusionary conduct—that prevent a competitive threat from materializing. Normally, a plaintiff has to show that the defendant’s conduct—and not one or more of these other factors (like, e.g., that the rival was of such low quality that it couldn’t realistically have mounted a real challenge)—was the but-for cause of the challenger’s failure. But where that threat is inchoate, proving the hypothetical course of future competition in the market is effectively impossible. Thus, in circumstances where we’re confident that lessening the plaintiff’s burden won’t systematically lead to erroneous outcomes, we allow it to make out its prima facie case without demonstrating but-for causation:
The court pointed out that “neither plaintiffs nor the court can confidently reconstruct a product’s hypothetical technological development in a world absent the defendant’s exclusionary conduct.” Given this “underlying proof problem,” the Court may infer causation.[11]
According to Judge Ginsburg’s clarification of what the Microsoft court held, the limited circumstances that satisfy this standard are: 1) as noted, the threat is of the sort that can’t actually be proven—that is, the allegedly thwarted competition must arise from a speculative, but realistic, process that can’t be falsified; 2) the defendant’s conduct must be proven to be, in fact, sufficient to impede the materialization of such a threat (“[o]f critical importance is that the court’s causation standard was conditioned on its having found anticompetitive effects”[12]); and 3) the plaintiff must be a government enforcer.[13]
Obviously, the Google Search case involves a government enforcement action. But for Microsoft’s lighter causation standard to apply, it must also involve a nascent threat and conduct proven sufficient to prevent rivals from achieving minimum efficient scale. Arguably, neither is true in Google Search.
The holding in Microsoft that causation need not be perfectly proven was a function of those specialized facts. It was not, contra Judge Mehta’s approach to this case (and that of many others before him), “a matter of general tendency.”[14]
1. Causation may be inferred only when the competitive process is speculative The key question in Microsoft was the foreclosure of competition by a nascent competitor—where the entire theory of the case was built on a set of suppositions about the progress of technology, speculation about the unpredictable role the nascent competitor could play in disrupting competition in an established market, and uncertainty about whether Microsoft viewed it (Netscape Navigator) as a competitive threat.
That is not really the case in Google Search. Bing, obviously, and Yahoo! and others before and after it are/were not nascent competitors. Nor is Bing bringing an innovative disruption to the market that will follow an unknown course. Rather, it is a direct, close substitute for Google Search. And, of course, this is obvious to Google. It is distributed the same way; it is used the same way; it is not unknown or uncertain in its competitive relationship with Google Search. None of which means it was actually a competitive threat to Google (more on this later). But it does mean that the competitive process is well understood.
Why does this matter? Because it means that much less speculation is required about whether and how Bing could act as a competitive constraint on Google. We do have actual competition and consumer behavior to assess in understanding the extent of its competitive threat and whether Google’s challenged conduct impaired it. And we do not have to create an entirely hypothetical world in which establishing causation would be impossible.
None of that was true in Microsoft.
We know this, in part, because of another case the same court decided a few years after Microsoft: Rambus v. FTC.[15] With respect to the speculative extent of the but-for world and the viability of demonstrating causation, the facts in Rambus are more similar to the facts here than are the facts in Microsoft. In Rambus (which involved the selection by a standard-setting organization (SSO) of technology to be included in an industry standard) competition was direct and well-understood. The sole question was whether Rambus’s conduct (deception over its patent holdings, which led to the inclusion of its technology in the industry standard) enabled its technologies to monopolize the relevant markets to the exclusion of its rivals, or whether, had it disclosed and the SSO obtained assurances it would license its technology on RAND terms, it would still have obtained its dominant market position.
Of course, in Rambus—as everywhere—it was impossible to truly know the but-for world (i.e., what Rambus’s market position and that of its competitors would have looked like under different licensing terms). But the competitive process by which such an outcome could arise was straightforward, and its competitive alternatives were known. The same could not really be said of Microsoft.
B. Misreading Rambus In Rambus, the question was whether Rambus’s behavior led to the exclusion of rivals, or whether, even absent its behavior, rivals would have been excluded. That is the identical question that should have been asked here: Was Bing’s failure to gain more market share proved to be a function of Google’s distribution deals, or was it a function of consumer and distributor preferences for Google over its rivals?
As the court in Rambus found, the FTC’s reasoning (from which the court heard the appeal) was logically flawed, in exactly the same way the court’s reasoning is flawed in this case. It is therefore odd that Judge Mehta distinguishes Rambus and rejects the applicability of its legal standard on grounds that are superficial and unrelated to the relevant question of when a given legal standard should apply.
The consequence of this decision for the Google Search case was enormous. By relieving the plaintiffs of having to show but-for causation, Judge Mehta relieved them of the burden of proving their case. This is exactly why Rambus is so important.
1. What Rambus Says So, here’s what the court said in Rambus. First, the court laid out the standard:
The critical question is whether Rambus engaged in exclusionary conduct, and thereby acquired its monopoly power in the relevant markets unlawfully.
To answer that question, we adhere to two antitrust principles that guided us in Microsoft. First, “to be condemned as exclusionary, a monopolist’s act must have ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58…. Second, it is the antitrust plaintiff—including the Government as plaintiff—that bears the burden of proving the anticompetitive effect of the monopolist’s conduct. Microsoft, 253 F.3d at 58-59.[16]
Applying these principles, however, the implication of the FTC’s argument was ambiguous:
The Commission’s conclusion that Rambus’s conduct was exclusionary depends, therefore, on a syllogism: Rambus avoided one of two outcomes by not disclosing its patent interests; the avoidance of either of those outcomes was anticompetitive; therefore Rambus’s non-disclosure was anticompetitive.[17]
The Rambus court acknowledged that the first of these possible outcomes would be anticompetitive,[18] but on the second it found the causal link unclear.[19] And because this alternative was not inherently anticompetitive, the Rambus court rejected the FTC’s argument based on its failure to prove that Rambus’s conduct, and not simply its inclusion in the standard (even on less-favorable terms), led to its market position:
Here, the Commission expressly left open the likelihood that [the SSO] would have standardized Rambus’s technologies even if Rambus had disclosed its intellectual property. Under this hypothesis, [the SSO] lost only an opportunity to secure a RAND commitment from Rambus. But loss of such a commitment is not a harm to competition from alternative technologies in the relevant markets….
…Thus, if [the SSO], in the world that would have existed but for Rambus’s deception, would have standardized the very same technologies, Rambus’s alleged deception cannot be said to have had an effect on competition in violation of the antitrust laws.[20]
If the court was correct that only one of the two outcomes was anticompetitive, then its conclusion was inescapable. As Josh Wright has long (since 2009) maintained, “the D.C. Circuit’s causation standard [in Rambus] should not be controversial and appears eminently reasonable.”[21]
Both the Commission and the D.C. Circuit accept that there must be a causal showing that deception significantly contributes to some anticompetitive effect. The disagreement is over whether both possible paths actually involve anticompetitive effects. If one agrees with the Commission that both causal paths violate Section 2, a requirement that a plaintiff specify precisely which path resulted in an anticompetitive effect is unnecessary and likely unwise. However, if one believes that only one causal path constitutes a violation of Section 2, such a requirement is necessary….[22]
Importantly, the Rambus court held this despite recognizing that Rambus’s deception made the inclusion of its technology in the standard “somewhat more likely.”[23] That wasn’t enough, because the FTC failed to show that that wouldn’t have happened even without—that is, but for—Rambus’s deception. “The critical point is that the Commission bore the burden of demonstrating that Rambus’s deception caused the unlawful acquisition of monopoly power.”[24]
C. Misconstruing the Legal Standard Under Microsoft and Rambus Here, we can rewrite Rambus’s conclusion using the facts of the Google Search case and readily see its applicability:
Thus, if [distributors like Apple and Mozilla], in the world that would have existed but for [Google’s default distribution deals], would have [chosen] the very same [default search provider], [Google’s conduct] cannot be said to have had an effect on competition in violation of the antitrust laws.[25]
This is not how Judge Mehta assesses the Rambus decision, however. Instead, he distinguishes it on the tenuous grounds that it involved a different type of exclusionary conduct, in a different factual setting, and that, as a result, it is inconsistent with his reading of Microsoft:
Rambus does not establish a categorical rule that the anticompetitive effects of an exclusive agreement must be measured against a but-for world. That case involved deception to a standards-setting organization, a form of exclusionary conduct particularly susceptible to a finding of materiality…. In such circumstances, the D.C. Circuit deemed it appropriate to demand proof that Rambus’s deception in fact resulted in competitive harm. Nowhere, however, did the court suggest that such a strict standard of proof was required to demonstrate anticompetitive effects for other forms of exclusionary conduct, particularly exclusive dealing arrangements. Such a holding would be contrary to Microsoft, and the court in Rambus nowhere questioned that precedent. Rambus therefore does not require Plaintiffs to prove substantial foreclosure against a but-for world.[26]
But “deception to a standards-setting organization” is not a circumstance “particularly susceptible” to a but-for analysis compared to that of default search distribution deals. Indeed, it has more in common with the circumstances here than Microsoft does. That’s because, as noted, the but-for world in that case is easy to understand and analyze (even if, as in all cases, the but-for world is never a simple or certain calculation). It is in the Google Search case, as well. The but-for world in this case, as in Rambus, involves an essentially binary choice among known alternatives with a direct line between the relevant conduct and that choice. In Rambus, it was a choice by an SSO between two licensing regimes (one less restrictive, and one more restrictive) for Rambus’s patents in its standards, and Rambus’s deception could clearly affect that choice. Here, it is a choice by users between (essentially) two search engines, and the choice of default search provider can clearly affect that choice (because the cost of using the non-default is inherently higher).
Moreover (and as noted above), according to Judge Ginsburg, Rambus is not a special exception to Microsoft’s general rule; Microsoft is a special exception to Rambus. It is the nascency of the threat in Microsoft (which didn’t exist in Rambus) that leads to its uniquely truncated analysis and not the specific context of Rambus that somehow cabins its applicability:
Reading Microsoft and Rambus together, the key takeaway is that only when anticompetitive effects are shown (as required by Microsoft and Rambus) does the “reasonably capable of” causation standard apply to allegations that exclusionary conduct killed a nascent threat. Only when these conditions are met may the government avoid having to show that the threat would have become a real competitor but for the alleged exclusionary conduct.[27]
Nevertheless, misconstruing the legal standard under Microsoft and Rambus, Judge Mehta holds that Microsoft’s lighter, “reasonably capable of” standard applies:
The key question then is this: Do Google’s exclusive distribution contracts reasonably appear capable of significantly contributing to maintaining Google’s monopoly power in the general search services market? The answer is “yes.” Google’s distribution agreements are exclusionary contracts that violate Section 2 because they ensure that half of all GSE [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices, as well as cause additional anticompetitive harm.[28]
D. How We Know It Is Wrong
It is immediately obvious why, even if it weren’t a misreading of the case law, this cannot possibly be the correct standard—and why it makes no sense to suggest that a less strict standard of proof is particularly appropriate for exclusive-dealing arrangements.
We don’t need to ask if the agreements “reasonably appear capable of significantly contributing to maintaining Google’s monopoly power” because of course they are “reasonably… capable” of contributing to Google’s monopoly power. That’s why we have scores of antitrust cases looking at the effects of distribution agreements. If all that were required to win such a case were the reasonable capability of an agreement to contribute to a dominant firm’s competitive position, then no exclusive or quasi-exclusive agreement would ever be legal.[29]
We ask whether exclusive agreements “reasonably appear capable” of maintaining monopoly, instead of asking whether they actually maintained monopoly, only when the connection between what is being excluded and monopoly maintenance is unclear—as in Microsoft, where it was unclear if Netscape Navigator could actually constitute a competitive threat to Microsoft’s operating-system dominance. But here that is not a question.[30] Where the rival is a direct competitor with a close substitute product, an exclusive deal by a dominant incumbent is always capable of foreclosing the rival. In such circumstances it is simply not consistent with the plaintiff’s burden of proof to allow them to show only that the challenged conduct is the sort that could maintain monopoly, rather than that the defendant’s conduct in fact caused anticompetitive harm.
Difficult as it may be, demonstrating this in an actual competition case like Google Search is not impossible. Indeed, as I discuss below, there is copious evidence in the case that the cause of Bing’s limited market share was not Google’s default distribution deals, but Bing’s lack of quality. Any comparable evidence in Microsoft would have been wholly speculative—but not here.
As Judge Ginsburg notes (again challenging the general applicability of Microsoft’s truncated legal standard):
As in Microsoft, the “but-for” world in Rambus was highly uncertain.[[31]] In both cases, one could reasonably find the defendant’s conduct may have caused the defendant to acquire or maintain its monopoly power. At the same time, it was also possible that the defendants in those cases would have acquired or maintained their monopoly power even absent their anticompetitive behavior. The court in Rambus held the government must bear the burden of that uncertainty. This burden applies in all Section 2 cases….[32]
But it is also arguably the case that, properly construed, Google’s default distribution deals were not capable of excluding Bing from the market. We turn to this next.
II. The Failure To Prove That Defaults Are Exclusive Judge Mehta holds that Google’s distribution deals had anticompetitive effects “because they ensure that half of all [general search engine] users in the United States will receive Google as the preloaded default on all Apple and Android devices.”[33] He derives this conclusion (which he repeats several times) from the testimony of one of the plaintiffs’ economic experts, Michael Whinston, who finds that “50% of all queries in the United States are run through the default search access points covered by the challenged distribution agreements.”[34]
Judge Mehta’s claim is that, because users don’t switch away from defaults very often, and because the “market realities” of the search market—given Google’s default distribution deals—are that half of all relevant searches occur through access points covered by those deals, we can conclude that those deals foreclose competitors from 50% of the general search market (a big enough amount to constitute anticompetitive foreclosure).
But this is not how you measure foreclosure, and the assertion that that number shows that Google’s default deals—and not something else—“significantly contribut[e] to maintaining Google’s monopoly power”[35] is fallacious.
Just because the government shows there is “significant” usage of Google’s default services ex post—meaning, given Google’s default deals, and after consumers have chosen which search engine to use—does not mean it has proven that 50% of the market was foreclosed from access by competitors. Nor does it mean that the government has met its burden of proving that this was caused by the agreements. Perhaps all of those consumers are inframarginal consumers who would have chosen Google Search anyway, even if it weren’t the default. Perhaps all of them were perfectly capable of accessing Bing, but simply chose not to. In that case, the ex-post usage data would tell us nothing about the extent of foreclosure.
Demonstrating foreclosure requires comparison to the but-for world; it requires showing that, absent Google’s deals, Bing would have had access to and been used by substantially more marginal consumers (those who view Bing and Google as effective substitutes and wouldn’t expend extra cost to use one search engine or the other).[36] This is so for three reasons.
First, these agreements are not, in fact, “exclusive.” That matters, because it is much harder to infer that it was the agreements, and not consumer preferences for a particular product, that caused Google’s dominance when consumers have ample opportunity to exercise their preferences to not use Google Search.
Second, and relatedly, looking at the share of searches ex post that go through these defaults is less telling, and the number can’t simply be accepted at face value, when searching via the default service is not the only option. As in Rambus, Google’s maintenance of a large share of these searches is just as consistent with a non-problematic set of facts (consumers simply prefer Google Search and, knowing that, distributors offer Google as the default) as with a problematic one (consumers use Google Search only because it is the default service, and distributors offer Google Search as the default only because Google pays them to do so).
Finally, failing to demand that the plaintiffs demonstrate that Google’s default distribution deals actually foreclosed competitors, and allowing them effectively to prove their case by showing only that the deals made Google’s large market share “somewhat more likely,”[37] erases the requirement that plaintiffs can win only if they prove that challenged conduct causes anticompetitive harm. This is an invitation for dramatically erroneous decisions.[38] As Judge Ginsburg and Koren Wong-Ervin write:
Without requiring proof of but-for causation, there is great risk of erroneously condemning [conduct] that may be procompetitive. Consider, for example, Herbert Hovenkamp’s proposal presumptively to condemn acquisitions by a monopolist of “any firm that has the economic capabilities for entry and is a more-than-fanciful possible entrant, unless the acquired firm is no different from many other firms in these respects.” “More-than-fanciful” is an invitation to speculate, not a standard of proof.[39]
Let’s examine these problems with Judge Mehta’s legal standard based on Michael Whinston’s market-share numbers a little more thoroughly.
A. Establishing the Amount of Competition: Minimum Efficient Scale So much of Judge Mehta’s conclusion that Google’s default deals were exclusive (despite not actually being “exclusive”) turns on his contention that defaults are the best way for search engines to distribute themselves,[40] and, therefore, that Google tying up default access was sufficient to establish the requisite exclusivity for an exclusive-dealing claim.
But as the Rambus court points out, “conduct [does] not violate antitrust laws where absent that conduct consumers would still receive the same product and the same amount of competition.”[41] This is a statement that the but-for world matters, and the relevant question is the relative “amount of competition.”
So, how do we measure the “amount of competition”? Well, we can’t measure it as Judge Mehta and Prof. Whinston do, by looking at what people choose ex post.[42] This is a fairly useless statistic. It says next to nothing about what share of marginal searchers use Google because it is the default, and what share use Google because they prefer it. (And, of course, it says nothing about what share are inframarginal consumers who would use Google regardless of the cost of accessing it). That, in turn, tells you nothing about the amount of competition that existed before they made their choices.[43]
Nor can we simply look at the scope of the default distribution agreements. If people can still easily choose other search providers despite the default deals, those deals cannot be said to foreclose competition—at the very least, not in proportion to the share of the market covered by those deals.
We can, however, examine whether rival search providers were able to achieve minimum efficient scale in such an environment—that is, whether the conduct at issue was capable of precluding otherwise viable competitors from gaining enough customers to sustain themselves as a competitive alternative. Indeed, this is exactly what Google argued was required: “[Google] contends that Plaintiffs have failed to establish a link between the agreements, the denial of sufficient scale to rivals, and anticompetitive effects….”[44] It is also what Judge Ginsburg says is required: “The court [in Microsoft] inferred harm to the competitive process from these findings, in essence recognizing that minimum-efficient scale is the mechanism by which exclusionary conduct harms competition.”[45]
Yet nowhere does Judge Mehta effectively grapple with the minimum-efficient-scale question. He does discuss the importance of scale in search, and he holds that Google is of higher quality than Bing and other competitors, in part, because of its scale. But he never really asks or answers the questions 1) whether this difference is uniquely attributable to Google’s default distribution deals, and 2) whether those deals preclude rivals from effectively competing, or simply make it harder for them to compete because they raise the cost of achieving comparable quality.
Now, the evidence here, as far as we can assess it from the decision, is not entirely clear-cut. But the answer isn’t really the issue. The real issue is that this is an essential question, on which the government bears the burden of proof, and it was simply missing from the opinion. In other words, this means the holding in the government’s favor is unsupported as a matter of law.
B. De Facto Exclusivity
Even so, let’s assess how well the evidence supports the conclusion that the default deals were really “de facto” exclusive, and that they prevented rivals from achieving the minimum efficient scale.
We have no idea if the default deals had anything to do with it, but we do know that Neeva, a once-promising general search engine, apparently had a hard time competing for users and went out of business after about four years.[46] On the other hand, Bing, Yahoo!, DuckDuckGo, Ecosia, and Brave all exist and continue to compete in this environment. Yes, they have relatively small market shares, but apparently they have enough scale for viability.
Similarly, on the one hand, there has been clear “competition for the market” between Bing and Google with respect to the default access points on Apple devices and in Mozilla’s Firefox browser. On the other hand, there is less clear competition with respect to Android OEMs (in Google’s favor)—but there is also less clear competition (actually, there is none) between them for default placement in Edge (in Bing’s favor).
1. Misunderstanding the ‘power of defaults’ With respect to the conclusion that the cost to users of choosing the non-default option is higher, that is inherently true, of course. But it is arguably trivially so. Judge Mehta spends a fair amount of time on this question (although not in the proper context of this but-for assessment) before arriving at his conclusion that being a non-default is tantamount to being excluded. His analysis, however, is unconvincing.
First, the analysis is heavily influenced by the assertions of the government’s behavioral expert, Antonio Rangel.[47] As I will discuss below, some empirical data specific to the context at hand is used to bolster the more general behavioral claims of the government’s expert (which I believe cuts in many respects against Judge Mehta’s conclusions). But it is clear that any ambiguity was resolved by Judge Mehta in favor of asserted general behavioral patterns:
That users overwhelmingly use Google through preloaded search access points is explained in part by default bias or the “power of defaults.” The field of behavioral economics teaches that a consumer’s choice can be heavily influenced by how it is presented. The consensus in the field is that “defaults have a powerful impact on consumer decisions.”[48]
There are access points other than the default that can be used to distribute a GSE, but those channels are far less effective at reaching users. That is due in part to users’ lack of awareness of these options and the “choice friction” required to reach these alternatives.[49]
[A]s Dr. Rangel convincingly explained, the combination of user habit, Google’s brand, and choice friction creates a powerful default effect that drives most consumers to use the default search access points occupied by Google.[50]
The main problem with this is not so much that behavioral science is wrong (surely, it is correct that the more friction there is to switch from a default, the less likely someone will switch), but that it is not dispositive. This makes it a weak basis for meeting the plaintiffs’ burden. It is also not clear that general behavioral theories have the same traction in the specific environment at issue. As my colleague Dan Gilman has discussed, the learnings of behavioral science were established in settings quite different than search engine defaults.[51] “Generalizing findings from, e.g., cereal-box placement to the durability of search engine defaults seems a stretch (or entirely speculative).”[52]
To be sure, Rangel’s testimony did purport to apply those learnings in context.[53] But what really matters in this case is not the direction of the behavioral assumptions, but the magnitude. (Again, no one disputes that defaults grant some benefit, nor that promoting one’s products—i.e., marketing—can influence consumer choice). The claim here is that the availability of switching does not sufficiently negate the effective exclusivity of defaults to permit rivals to compete. That claim depends on the extent to which users tend not to switch away from defaults, not just the fact that they sometimes don’t.
Among other things (more of which are discussed below), it must be noted that, even when users are presented with a neutral option (e.g., a “choice screen”), they appear to make essentially the same choices as when presented with a default. In Europe, where Google has since 2020 implemented a search engine choice screen on Android following the EU’s 2018 antitrust decision against it,[54] Google’s share of the search engine market has barely budged.[55]
By the same token (at least when Google is the non-default) users are apparently quick to switch from a less-preferred default in order to get access to Google Search:
In a 2016 experiment, Mozilla switched the default GSE on both new and existing users from Google to Bing. By the twelfth day, Bing had kept only 42% of the search volume. After some additional time, those numbers dropped to 20–35%….[56]
It is exceedingly difficult to square these facts with the court’s conclusions on the functional irrelevance of non-default options.
C. Overlooking Evidence of User Switching Behavior and Impressionistic, Not Quantitative, Conclusions The majority of the decision’s discussion of consumers’ behavior around defaults is largely impressionistic, not quantitative. For example, Judge Mehta notes that:
Another non-default search access point is the bookmarks page on a browser. The Safari “Favorites” page, for instance, contains preloaded icons to access Google, Bing, and Yahoo. A user also can add a new search engine on that page. But few consumers use this channel, as it first requires finding the Favorites page in a new Safari tab, which requires an “extra click.” Google itself receives only 10% of its searches on Safari through the bookmark.[57]
Strictly speaking, 10% is “quantitative,” but the decision’s conclusions based on this data are decidedly impressionistic. Judge Mehta asserts that Google receiving “only” 10% of searches on Safari through the bookmark is an insignificant volume. But in that setting—where Google Search is already the default on Safari and can be accessed simply by typing in Safari’s URL bar, and in which it is alleged that virtually no one ever uses anything other than default search on Safari—why would there be any searches on Google via the bookmark? If that number of searches is at all different from zero, it would appear to demonstrate that it is indeed a relevant channel by which consumers can find search engines, including non-default ones. In other words, 10% may be “insignificant” as a share of Google searches, but it is quite significant with respect to the relevant legal standard.
Indeed, “nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search.”[58] Judge Mehta dismisses this by arguing that “the fact that some consumers access search on non-default access points is not dispositive on exclusivity.”[59] “Not dispositive” is not quantitative. While the statement is true, the burden of proof is on the plaintiffs, and this not being dispositive cuts against them, not against Google.
Elsewhere, Judge Mehta also rejects the actual evidence of people switching to the non-default on PC desktops. It turns out that a lot of Windows desktop users download Chrome and use Google Search there, rather than relying on Bing, which is the default search engine in the Edge browser:
To be sure, downloads of an alternative browser occur with greater frequency on Windows desktop computers. On such devices, Edge is the default browser and Bing is the default search engine. Yet, Google’s search share on Windows devices is 80%, with most of the queries flowing through the Chrome default, which means Chrome was downloaded onto the device.[60]
Despite this, Judge Mehta is quick to note that, for those users who still use Edge, Bing is the most used search engine:
The power of defaults is evident, however, from the share of Bing users on Edge. Bing’s search share on Edge is approximately 80%; Google’s share is only 20%. Even if one assumes that some portion of those Bing searches are performed by Microsoft-brand loyalists, Bing’s uniquely high search share on Edge cannot be explained by that alone. The default on Edge drives queries to Bing.[61]
One might suggest that all this shows is that people really prefer Chrome to Edge, not that they prefer Google Search to Bing enough to switch away from the default (on either browser). Except that, as the opinion points out, “Google’s dominance on Windows cannot, however, be attributed simply to the popularity of Chrome. Google had an 80% search share on Windows when Chrome first launched, and that share has remained steady ever since.”[62] If that’s the case, it can mean only that the default search on Windows desktops isn’t very sticky—and it isn’t just because users prefer Chrome to Edge; apparently it’s because they prefer Google Search to Bing.
So how does the court conclude that it supports the “power of defaults” that, of those users who don’t switch to Chrome on Windows desktops, approximately 80% use Edge’s default? If most Windows users who prefer Google Search to Bing switch from the default by downloading Chrome instead of by switching the default in Edge, then of course most of those who remain on Edge will use Bing. If they preferred Google to Bing, they would have switched to Chrome.
As Judge Mehta notes elsewhere, “[m]any users do not know that there is a default search engine, what it is, or that it can be changed.”[63] Perhaps. But then again, apparently, many users do know that Chrome gets them access to their preferred search engine. Whatever “choice friction” impedes the movement away from the default search engine on Windows desktops, it is not strong enough to prevent people from maneuvering around it in spades—they just don’t often do so directly by switching the default search engine in Edge.[64]
The opinion also brushes off these examples of default switching by asserting that they merely “confirm that the default effect is weaker when the alternative is a dominant firm with high brand recognition backed by a quality product.”[65] First, this is pretty hand-wavy and impressionistic. Maybe it’s true; in fact, I’m sure it’s true to some extent. But for an opinion that otherwise regularly says we have to look at “market realities,” not the world as it might be, this is a weak basis to conclude that evidence of people switching away from defaults doesn’t really show that people switch away from defaults.
Regardless—isn’t the ability to attract users because you are widely used, have good brand recognition, and have a demonstrably high-quality product pretty much the definition of competition on the merits? Indeed, one could recast Judge Mehta’s statement as precisely the opposite of the decision’s holding: Google’s default agreements can’t be deemed to have caused anticompetitive harm because defaults are readily overcome by high-quality, reputable alternatives.
It should also be noted (but, unfortunately, Judge Mehta doesn’t say it) that Microsoft is also a “dominant firm with high brand recognition backed by a quality product.”[66] What’s good for the goose is good for the gander: Microsoft has plenty of market heft to ensure that its products don’t languish in obscurity in the face of consumer inertia.[67]
III. The Scale and Quality Argument: A Double-Edged Sword All of which raises the question: Is Bing a comparably high-quality product or not? Determining that seems like a pretty important prerequisite to determining whether its small market share is a function of anticompetitive exclusion or a failure to compete on the merits. Yet Judge Mehta is, at best, equivocal on this. First, he notes that:
Everyone agrees that Google’s distribution agreements did not cause Microsoft’s past underinvestment in search. Microsoft “missed” the mobile revolution and was unable to improve its browser, Internet Explorer, until it used Google’s rendering engine, Chromium. Some of Microsoft’s quality issues also were attributable to its poor index.[68]
Yet, “[u]ltimately, Microsoft committed significant capital to search.”[69] And “[t]hat investment (combined with secured distribution on Windows devices) has allowed Bing to achieve quality parity with Google on Windows desktop devices.”[70]
Elsewhere, however, Judge Mehta concludes that “Google’s exclusive agreements… deny rivals access to user queries, or scale, needed to effectively compete,”[71] and that “[t]his perpetual scale and quality deficit means that Microsoft has no genuine hope of displacing Google as the default GSE on Safari. As Apple’s Eddy Cue testified, there was ‘no price that Microsoft could ever offer [Apple]’ to prompt a switch to Bing, because it lacks Google’s quality.”[72]
I admit that it’s unclear to me why Bing’s apparent quality parity in desktop search doesn’t redound to its benefit in mobile search. Indeed, it has to be noted that the court did not identify separate relevant markets for mobile and desktop search; it identified a single “general search services” market.[73] So, it’s a little unclear, but it seems that, according to the court, ultimately Bing simply isn’t up to Google Search’s quality standard.
A. The Failure to Distinguish Between Exclusion and Low Quality: A Catastrophic Legal Blunder The problem is that it is precisely past decisions and their alleged influence on current outcomes that the court uses to establish the proposition that Google’s default deals are anticompetitive. As I keep pointing out, however—and as Judge Mehta appears here to recognize—plaintiffs cannot meet their burden of proof that Google’s deals were exclusionary by pointing to Bing’s limited success, if the court agrees that Bing’s low quality could also have caused it. And here, Judge Mehta also concedes that those deals didn’t cause Bing’s lower quality, either (“Google’s distribution agreements did not cause Microsoft’s past underinvestment in search.”).[74]
For the court to sustain its claim that Microsoft is the appropriate guiding precedent (and thus, that the government has made its case under Microsoft’s “edentulous” legal standard), it has to be the case that Bing could have outcompeted Google on quality if not for the agreements—that is, that it “reasonably constituted [a] threat.”[75]
By conceding that Bing was unable to secure distribution deals comparable to Google’s because of its low quality, however, the opinion (and the government, of course) fails to do this. As such, they fall right into the trap explained by Greg Werden:
But if operating at a much smaller scale than Google makes rival search engines uncompetitive, their fate was sealed when Google achieved a dominant share. The government posits no scenario in which any rival search engine could have substantially closed the scale gap…. If the government’s scale contentions are fully credited, the conduct that is at the heart of the case did not maintain Google’s dominant share. And any conduct that could not have maintained dominance most likely served a legitimate purpose. One way or another, the elements of the monopolization offense cannot be established under the government’s view of the facts…. But the government does not contend that rival search engines ever posed a real threat to Google’s monopoly. Indeed, it claims to have proved just the opposite.[76]
That’s a catastrophic problem for the opinion’s holding. Nevertheless, Judge Mehta does find that Bing is not a viable competitor on mobile. Yet he refutes Google’s claim that this is because of Microsoft’s own business failures, rather than its inability to gain scale:
Google also maintains that the quantity of user data is less important than how it is used, and if its rivals had Google’s business foresight and drive to innovate, they too could win default distribution. But that position blinks reality. Apple’s flirtation with Microsoft best illustrates this point. Microsoft has invested $100 billion in search in the last two decades and its quality now matches Google’s on desktop search. Yet, Microsoft’s failure to anticipate the emergence of mobile search caused it to fall behind, and with Google guaranteed default placement on all mobile devices, Microsoft has never achieved the mobile distribution that it needs to improve on that platform.[77]
Isn’t Microsoft’s “failure to anticipate the emergence of mobile search” precisely the sort of competitive failure that Google is talking about? How is Microsoft’s diminished scale attributable to Google’s conduct if it was Microsoft’s independent business decisions that denied it the ability to compete effectively?
This is exactly why a plaintiff must prove that the defendant’s conduct, and not an excluded rival’s own mistakes, were the cause of the rival’s inability to compete. Otherwise, the law would be enlisted to rectify competitors’ poor business decisions, rather than to protect the competitive process.
1. Even Judge Mehta knows ‘reasonably appears capable of’ is the wrong standard It also bears noting that Judge Mehta already—and properly—threw out exactly this sort of claim on summary judgment when he dismissed the plaintiff states’ claims that “Google’s targeting of SVPs [specialized vertical providers] caused anticompetitive effects in the proposed markets.”[78] But the basis on which he did so is shockingly at odds with the basis for his decision in the government’s favor in this case. Citing Microsoft, in fact, Judge Mehta held in his summary judgment opinion that:
Speculation that Google’s conduct “can reasonably be expected,” “might,” or “could potentially” degrade SVPs and make them less attractive partners to Google’s rivals is not evidence of anticompetitive effects in the relevant markets. Plaintiffs are required to show with proof “that the monopolist’s conduct indeed has the requisite anticompetitive effect,” and they have fallen well short.[79]
And, as he notes elsewhere in his summary judgment opinion, also citing Microsoft, “[t]he sole issue for the court to resolve is whether Google has maintained monopoly power in the relevant markets through ‘exclusionary conduct’ as opposed to procompetitive means.”[80]
The words “can reasonably be expected”—rejected by Judge Mehta in his summary judgment decision—might ring a bell, as they are awfully close to the “reasonably appear capable of” standard adopted by the court in this decision.
B. Less-Efficient Channels of Distribution: Misapplying Microsoft Again Finally, there is another problem with the legal sufficiency of the exclusivity claims, and it stems, once again, from a misapplication of Microsoft.
Judge Mehta claims that “mere user access to these less efficient channels of distribution does not render the browser agreements non-exclusive.”[81] A significant part of the defense of this position turns on an analogy to Microsoft and the argument there that it was sufficient that Microsoft foreclosed access to the best method of distribution. Indeed, the next sentence after the quote above is, “Microsoft again illustrates the point.”[82] But does it?
Judge Mehta says this case is the same as Microsoft where the court “reject[ed] the argument that Microsoft’s licensing agreements with OEMs were not exclusive ‘because Netscape is not completely blocked from distributing its product,’ as ‘although Microsoft did not bar its rivals from all means of distribution, it did bar them from the cost-efficient ones.’”[83] He then asserts that “[t]he record here resembles that in Microsoft. Users are free to navigate to Google’s rivals through non-default search access points, but they rarely do.”[84]
But this elides a couple of key things.
First, the Microsoft court didn’t look ex post at what consumers did (which, as I tire of pointing out, could be attributable to either anticompetitive conduct or consumer preferences); it looked at which channels of distribution were available and if they were viable substitutes, regardless of whether they were actually used or not.
The analogy to Microsoft fails most obviously on the point that the “market realities” have changed a lot since the late 1990s. Downloading Netscape from the internet was wholly unfamiliar, exceedingly complex, and truly difficult for PC users back then—a real “choice friction” and thus not really a viable alternative. But downloading a competing search engine or browser today is trivially easy, and users do it all the time (to the tune of 12.6 billion app downloads in the United States in 2023 alone).[85] In this environment, the fact that users don’t download or use competing general search engines sufficiently to displace Google Search despite the ease of doing so suggests that it is consumer preference for Google Search, not the relative inefficiency of the channel of distribution, that causes this result.
Instead, Judge Mehta concludes that, while “a user can download Chrome, Edge, or [DuckDuckGo] onto an Apple device,” “[t]his, too, is not an easily accessible search point, as it involves similar choice friction as acquiring a search application. Google receives only 7.6% of all queries on Apple devices through user-downloaded Chrome.”[86]
Not only is downloading an application trivially easy, but the fact that Google receives only 7.6% of search queries on Apple devices through Chrome, but “most”[87] of its queries on Windows desktops through user-downloaded Chrome is decidedly ambiguous. Maybe that shows that people download Chrome on Windows not to get easy access to Google Search but because the Chrome browser is superior to the Edge browser, while it is not any better than Safari. But it is also consistent with the conclusion that people aren’t prevented from accessing their preferred search provider (Google Search)—they just don’t need to download Chrome on Apple devices to get easy access to it, while they do need to do so on Windows devices.
Second, the opinion says that “[t]he court in Microsoft did not say that these contracts caused zero market foreclosure merely because Internet Explorer had other, less-efficient means of reaching users.”[88] True. But the court in Microsoft also didn’t say that any amount of difference in distribution efficiency was sufficient to maintain that a non-exclusive agreement was effectively exclusive. As noted, it is now trivially easy to switch search providers on virtually every platform and at multiple decision points on each. Defaults don’t prevent that, and prioritized placement (from, e.g., a spot on the Android home screen) doesn’t even crowd out alternatives once they are downloaded (which can then be similarly accessed from priority positions on the home screen). “Very slightly less efficient” could still be “efficient.” The fact that the difference between the foreclosed and available channels of distribution in Microsoft was large enough to matter does not mean that the difference between them in Google Search is big enough to matter.
1. So, Dentsply is good law, but Rambus isn’t? In response, Judge Mehta goes back to ex post user conduct to hold that the fact that users don’t often use these alternatives shows that the difference does matter here, and that Google’s default distribution deals are effectively exclusive and lead to foreclosure:
Sure, users can access Google’s rivals by switching the default search access point or by downloading a rival search app or browser. But the market reality is that users rarely do so. The fact that exclusive agreements allow users to reach rivals through other means does not make the foreclosure number zero.[89]
But it cannot be a sufficient argument that “the market reality is that users rarely do so.” That market reality is exactly what is at issue in the case. Using the lack of user uptake from trivially easy alternative distribution channels as evidence that those alternative distribution channels aren’t relevant assumes the conclusion. It’s poor legal reasoning.
Judge Mehta is correct, however, that “‘[t]he mere existence of other avenues of distribution is insufficient without an assessment of their overall significance to the market.’”[90] If only he had demanded such an assessment.
The Dentsply case that Judge Mehta cites for this proposition was (in my opinion) wrongly decided. It shouldn’t be held up as the standard of analysis and, in any case, it was in the 3rd U.S. Circuit Court of Appeals and not binding precedent. But even so, Dentsply dealt with exclusive agreements that included a term explicitly prohibiting authorized distributors from selling rivals’ products, thus arguably making it extremely difficult for those products to be accessed by the ultimate consumer. This case is different. None of Google’s agreements include terms prohibiting its counterparties from dealing with anyone else. And here, competing products are available to the ultimate consumer, and they show up on users’ devices in locations virtually identical to Google’s.
In any case, the Dentsply court does not rely on ex-post uptake to support its claim that alternative distribution channels are insignificant (although it does look at that statistic on occasion). Instead, it describes in detail the qualitative differences between the channel of distribution foreclosed by Dentsply and the alternatives, finding that the alternatives are decidedly less attractive. Here, by contrast, the only thing that distinguishes default placement from the other channels of distribution is alleged “choice friction.” Otherwise, they are, quite literally, identical (or, as in the difference between, say, search bar integration and a home-page bookmark, trivially different). That makes assessing their “overall significance to the market” dependent on what is being distributed, and not solely the channel of distribution itself.
2. In fact, we know from other parts of the decision that ‘less-efficient’ alternatives can’t be dismissed Later, also quoting Dentsply, Judge Mehta asserts that:
In the end, Google’s dismissal of the importance of scale is inconsistent with market realities. Google often warns that competition is “only a click away.” However, “[t]he paltry penetration in the market by competitors over the years has been a refutation of [that] theory by tangible and measurable results in the real world.”[91]
This misses the mark for the same reason. There is plenty of evidence to demonstrate that competition is just a click away. In fact, some of it was evidence the court used to exclude specialized vertical search providers (e.g., Amazon and TripAdvisor) from the relevant market. Without challenging that conclusion here (although I do think it has problems), it appears eminently “tangible and measurable” to the question of whether users will switch to alternative search engines that, when the alternative is demonstrably superior for the query at issue, they do so in droves:
Google views competition from SVPs as “intense for commercial clicks.” A 2020 Bank of America study reported that 58% of users search Amazon first when they seek to make an online purchase, as opposed to only 25% who go first to Google, demonstrating Google’s secondary status as a starting point for users with high commercial intent….
…Microsoft recognizes that “if Bing or Google were not doing vertical searches well, or at least not having organic results that people could click to get to vertical search engines,” users might bypass GSEs and instead search directly on Amazon from the outset….
…[A]nalysis show[s] that a query sample of Google’s top 25 non-navigational shopping queries attracts more queries weekly on Amazon (3.7 million) than Bing (0.4 million)…, [and] that Yelp’s local query volume is higher than Google’s and much higher than Bing’s.[92]
None of these alternative vertical search engines is installed as the default. And yet, when consumer preference is strong enough—when they produce better results—consumers have no trouble using them. Whether or not this is sufficient to affect the court’s relevant market or market-share analysis, it is surely enough to demonstrate that users are not locked into defaults when the “choice friction” required to switch from them is small relative to the benefit. That, in turn, is a function of the quality of the search provider, not the method by which it is accessed.
IV. Getting It Wrong on the Substantiality of Foreclosure, Too The “substantiality” of foreclosure must also be briefly addressed, for similar reasons. While the opinion downplays its significance as a search engine distribution channel, Windows desktops constitute a substantial share of the distribution market. Windows accounts for 64% of desktop operating systems and almost 30% of all operating systems across all platforms in the United States.[93] On these devices, Bing is the default search engine. So, right out of the box, the share of the market that Google could even possibly foreclose is reduced by Windows’ 30% market share.
Of the remaining 70%, we know that small but non-trivial portions are not actually foreclosed to competitors. We know this from the ex-post data showing, for example, that “5.1% of all searches on iPhones are conducted on a GSE other than Google [where it is the default].”[94] We also know that, on Android, “[a]lthough OEMs must preload the Google Search Widget, users can delete it. As of 2016, there were about 200,000 logged widget deletions daily.”[95] Also, “Samsung already preloads a second browser—its proprietary S browser—on all Samsung devices.”[96]
We also know that “nearly 40% of queries on Apple’s mobile devices flow through non-default search access points, such as default bookmarks or organic search.”[97] Of course, a great number of these searches are performed on Google Search anyway.[98] But these are searches performed by users who demonstrably navigate around the default. By definition, they are not foreclosed to Google’s competitors.
Indeed, simultaneous with the Google default deals, Bing is, in fact, distributed by these counterparties to Google’s deals. Thus, as the result of an agreement with Microsoft, Bing shows up as an option on Safari’s homepage and on the Safari “Favorites” page, “which contains preloaded icons to access Google, Bing, and Yahoo.”[99] Mozilla has a “this time, search with” feature on Firefox “which allows users to select a different search product from its ‘Awesome Bar’ for a given query.”[100]
Again, Android is actually a somewhat unique case, and there the absence of true foreclosure is almost entirely dependent on the availability of end-consumer choice (which, again, is far from irrelevant). But even if we assume zero distribution of Bing on Android devices,[101] it still has unfettered access to distribution on Windows devices and is still distributed alongside Google on Apple devices and in Firefox.
The bottom line is that, even measured by ex-post consumer behavior, rivals are not foreclosed from access to consumers. And measured by the availability of access to rival search engines (whether consumers choose to use them or not), competitors are not actually foreclosed from distribution on any devices or in any browsers at all. To be sure, the remaining effective foreclosure level could be “substantial.” But nowhere does the court’s opinion demonstrate this. As plaintiffs have the burden of proof, the existence of meaningful consumer usage and availability, despite purported exclusive agreements, should have been deemed by the court to undermine the government’s case, not support it.
V. The Fateful Conclusion that Bing Isn’t a Real Competitor and the Problem of Remedy Finally, I have to say a word on remedy here, although I do so for now only insofar as it bears on what I have been arguing; there are many other arguments about remedy that make this holding problematic. But here is one, and it hearkens back to Greg Werden’s Catch-22.[102]
The jig was up for the plaintiffs in this case once they argued that Bing was not a viable competitor to Google Search. In the world of that “market reality,” no reasonable remedy would do any good to rectify the allegedly anticompetitive circumstances. And the court accepted the government’s quality arguments pretty much wholesale:
The market reality is that Google is the only real choice as the default GSE. Apple’s Senior Vice President of Services, Eddy Cue, put it succinctly when, in a moment of (perhaps inadvertent) candor, he said: “[T]here’s no price that Microsoft could ever offer [Apple] to” preload Bing. “No price.” Mozilla stated something similar in a letter to the Department of Justice prior to the filing of this lawsuit. It wrote that switching the Firefox default to a rival search engine “would be a losing proposition” because no competitor could monetize search as effectively as Google. A “losing proposition.” If “no price” could entice a partner to switch, or if doing so is viewed as a “losing proposition,” Google does not face true market competition in search.[103]
But if “no price” could entice a partner to switch to Bing, and Bing is not truly a competitor to Google in search, then, as Greg Werden says, “the conduct that is at the heart of the case did not maintain Google’s dominant share.”[104]
The Microsoft decision relies on the contention that, although unproven, Netscape Navigator was a viable competitive threat to Windows. Thus, the government had to prove in that case that the threats to Microsoft’s operating-system monopoly were real, even if it didn’t have to prove the threats would have succeeded but for Microsoft’s conduct. The government’s burden is at least as high here.
And yet, in the quote above, Judge Mehta essentially finds that the government didn’t meet even this burden. He finds, in effect, that it wasn’t the nature of Google’s agreements that contributed to Google’s continued monopoly power; it was the fact that no distributor would ever choose Bing as the default—at any price. That conclusion means that it was Bing’s low quality that excluded it from default distribution and the reason “Google does not face true market competition in search”[105] is a function of quality, not Google’s deals.
That’s already fatal to the case. The remedy point is this: That same market reality means that no remedy prohibiting Google from entering into such agreements will rectify the situation. It means that Apple, Mozilla, Samsung, et al. will still choose Google as the default, even if Google is forbidden from paying them a revenue share (or even a set price) to do so—they will just forego the revenue from doing so, and Google will get a windfall.[106]
Yet it is hard to conceive of any other remedy that follows from Judge Mehta’s analysis in this decision. The decision is laser-focused on the determination that Google’s default distribution deals were (effectively) exclusive and thus foreclosed a substantial share of the market and deprived rivals of scale. Everything in the decision comes down to the default nature of the deals. It stands to reason that any remedy would be limited to removing the one-deal characteristic that, according to the court, makes the agreements anticompetitive.
Cutting against this somewhat is Judge Mehta’s conclusion that, having been deprived of scale by Google’s distribution deals, no rival is in a position to secure a default deal of its own.[107] But it is by no means clear from the decision that, in the absence of default deals with Google, rivals would be unable to compete effectively through other channels of distribution or compete for such deals in the future. The problem is that, because the court has no ability to prohibit Apple and Mozilla from offering default search engines without a Google deal, even prohibiting Google from entering into those deals doesn’t mean it won’t still be offered as the default, and this may not change the competitive landscape enough to enable Bing and other rivals to compete effectively.
Perhaps one might think that Google should just be compelled to share its data (and/or other “secret sauce”) with rivals so they have the quality necessary to actually win default placement deals. But that doesn’t work either. In the first place, this would be a clear acknowledgment that it is quality, not default distribution deals, that impedes rivals’ commercial success. If that is the only effective remedy, then the necessary legal basis of the holding is undermined.
Secondly, implementing that remedy would entail mandating that Google enter into deals with competitors to help them compete. This is anathema to U.S. antitrust law.[108] So much so that Judge Mehta himself threw out one of the plaintiff states’ claims in this case on exactly that basis:
Plaintiff States seek to bypass the “no duty to deal” doctrine entirely…. …The concerns that animate the no-duty-to-deal principle are equally applicable here. Primarily, adjudicating Plaintiff States’ claim would require the court to act as a “central planner” that endeavors to identify the proper “terms of dealing.” Their claim requires grappling with a host of questions that the court is ill-equipped to handle…. And those thorny questions foreshadow the challenges the court would face in administering a remedy…. A favorable outcome for Plaintiff States thus would mire the court in Google’s day-to-day operations…. The court has learned a lot about Google, but it is “ill suited” for that role.[109]
It is extremely difficult to see how Judge Mehta would countenance a forced-sharing arrangement for Google’s data as a remedy for the remaining claims in this case, given his unequivocal dismissal of other claims on precisely that basis.
As I noted, there is more to say about potential remedies in this case.[110] But for now, the most important thing is that the absence of viable remedies strongly supports the arguments I have presented here that the court’s liability finding was improper.
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