Google fined €4.3bn for reducing consumer choice

Yesterday’s ruling from the European Commission that will result in Google receiving a record-breaking fine of €4.3bn for unfair practices is an absolute goldmine of a case study for students looking at market structures.

The Commission has said that Google (or its parent company Alphabet) have broken competition rules by insisting that any manufacturer using their Android operating system on a smartphone or tablet must also ensure that the Chrome Browser and Google search engine are installed by default. On the basis that very few users will alter this default, Google ensures that millions of people will search using their engine and can then reap the rewards of directing advertising or paid-for commercial links to the top of lists (and thus make huge profits).

The market for smartphone operating systems is dominated by just two companies – Google’s Android (available on a range of devices) and the Apple OS (available only on Apple phones and iPads). It would appear that the market is a duopoly and that Google are taking advantage of the fact that nearly 75% of smartphones in Europe use their OS. So, the customer is losing out on choice and we do not have optimum economic efficiency. Naughty Google.

Analysis may suggest that the case is not so straightforward as this and, indeed, Google are appealing against the decision (well they would, wouldn’t they?). Android is free to hardware manufacturers such as Samsung and Huawei and uses ‘open-source’ software that enables them to ‘re-skin’ the operating system to give their customers a unique(ish) experience – albeit with Chrome as the default browser). By ensuring that there is a genuine competitor for Apple, it has meant that third party app developers have more choice when writing their applications and competition within that market has been generated offering a much wider choice for consumers too. As Apple seemingly only caters for mid to high end smartphone specifications (and mid-range to Apple means their out-of-date stock) the availability of Android has allowed other smartphone manufacturers to develop products that caters for a much wider demographic. More people now have a choice to purchase a smartphone that would otherwise have been out of their affordability bracket. More children now have phones because of Android (okay, you can debate the merits here) and many more people in developing countries have smartphones. I don’t think that anyone would argue that Google have a warm-hugging, altruistic philosophy but perhaps they have an argument that their business model improves choice.