Predatory pricing

July 5, 2012 2:08 pm

The holiday review website Trip Advisor has joined a growing number of internet companies that are complaining to the European Commission about US web giant Google. Trip Advisor belongs now to a group of 12 companies – among them the popular travel firm Expedia – that accuse Google of abusing its dominant market position on the European search engine market, a claim that is currently being investigated by the European Commission.

The companies say Google’s methods are anti-competitive and unfair, since the US search engine offers its users two sorts of search results: unpaid results based on Google’s algorithms and displayed in the main body of the page, and ‘ads’, also known as ‘sponsored links’, which are being paid for and which are displayed on the right side of the page. The essence of the investigation is whether Google is using its search engine to direct users to its own services and to reduce the visibility of competing websites and services, whether the company’s system of generating unpaid results unfavorably affects the ranking of other websites, in particular those who offer services that are in direct competition with some of Google’s products.

For example, Expedia claims Google’s flight search services, ­ which were launched in September 2011, exclude any links to online travel agencies. The European Commission received the first complaints about Google in February 2010, when the small French search engine and the UK-based website Foundem contacted the European Commission in Brussels, Belgium. A number of other web businesses followed and in November 2011 the European Commission decided to investigate the claims. In the US, Google is under a similar investigation; a Senate subcommittee and the Federal Trade Commission are looking into whether the web giant is abusing its market position.

It is expected that EU Commissioner Joaquin Almunia will make a decision within weeks over whether to formally charge Google. Almunia will undoubtedly look at a recent court ruling in France. On 30 January, a French court ordered Google to pay damages of €500,000 for abuse of its dominant position, compensating for losses caused by Google’s policy of providing companies access to Google Maps, its online mapping service, for free.

Both the European Union and French competition law prohibit a company that holds a dominant position on a relevant market from abusing that position. Prohibited abuses include offering products at a price that is below their cost of production (known as ‘predatory pricing’), unless this can be objectively justified. It is not unlikely that Almunia will follow the French arguments and will partly base his decision on the ‘predatory pricing’ principle. After all, Google is offering many of its products free of charge and it is estimated that the company controls 90% of Europe’s search traffic. Since the latest French ruling, it is not surprising many smaller web companies are eagerly awaiting the Commission’s decision, especially because they remember what happened to computer giant Microsoft, which faced similar charges, in March 2004: the EU ordered Microsoft to pay £381 million, the largest fine ever handed out by the EU to one single company. So far.

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