The European Commission has fined Google € 2.42 billion for violating EU antitrust rules. Google has abused its market dominance as a search engine by giving another Google product, its shopping comparison service, an illegal advantage.

The company must stop the behavior within 90 days or face fines of up to 5% of the average global daily turnover of Alphabet, the parent company of Google.

Commissioner Margrethe Vestager, in charge of competition policy, said: “Google has created many innovative products and services that have changed our lives. That is a good thing. But Google’s strategy for its shopping comparison service wasn’t just to attract customers by making its product better than its competitors. Instead, Google abused its market dominance as a search engine by promoting its own comparison shopping service in its search results and downgrading those of its competitors.

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

Google’s strategy for its price comparison service

Google’s flagship product is the Google search engine, which delivers search results to consumers who pay for the service with their data. Almost 90% of Google’s revenue comes from advertisements such as those shown to consumers in response to a search query.

In 2004, Google entered the separate European comparison shopping market with a product that was initially called “Froogle”, which was renamed “Google Product Search” in 2008 and has been called “Google Shopping” since 2013. It enables consumers to compare products and prices online and to find offers from online retailers of all kinds, including online stores from manufacturers, platforms (such as Amazon and eBay) and other resellers.

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

Comparison shopping services rely to a large extent on traffic in order to be competitive. More traffic leads to more clicks and generates sales. In addition, more traffic also attracts more retailers who want to list their products on a comparison shopping service. Given the dominance of Google in general Internet search, its search engine is an important source of traffic for comparison shopping services.

From 2008, Google began a fundamental change of strategy in the European markets in order to accelerate its comparison shopping service. This strategy relied on Google’s dominance in general internet search and not on performance competition in the comparison shopping markets:

Google has systematically placed its own comparison shopping service in a prominent position: When a consumer enters a search query into the Google search engine that the Google Comparison Shopping service wants to display results for, these are displayed at or near the top of the search results.

Google has downgraded competing comparison shopping services in its search results: Competing comparison shopping services appear in Google’s search results based on Google’s generic search algorithms. Google has included a number of criteria in these algorithms that cause rival comparison shopping services to be downgraded. It has been shown that even the highest-rated competing service appears on average only on page four of Google search results, while others appear further down. Google’s own comparison shopping service is not subject to Google’s general search algorithms, including such downgrades.

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

The evidence shows that consumers are much more likely to click on results that are more visible, i.e. the results that appear higher up in Google’s search results. Even on a desktop, the top ten generic search results on page 1 collectively get about 95% of all clicks on generic search results (with the top ranking getting about 35% of all clicks). The first result on page 2 of Google’s generic search results only receives about 1% of all clicks. Not only can this be explained by the fact that the first result is more relevant, but it is also proven that moving the first result to the third rank results in a reduction in the number of clicks of around 50%. On mobile devices, the effects are even more pronounced due to the much smaller screen size.

This means that by prominently placing only its own shopping comparison service and downgrading competitors, Google has given its own shopping comparison service a significant advantage over its competitors.

Violation of EU antitrust rules

Google’s practices abuse Google’s dominant position in general internet search by stifling competition in the markets for comparable offers.

A dominant position as such is not illegal under EU antitrust regulations. Dominant companies, however, have a special responsibility not to abuse their powerful market position by restricting competition, either in the market in which they have a dominant position or in other markets.

Today’s decision concludes that Google occupies a dominant position in the general Internet search markets throughout the European Economic Area (EEA), ie in all 31 EEA countries . It notes that since 2008 Google has had a dominant position in the general internet search markets in all EEA countries, except in the Czech Republic, where the decision establishes a dominant position since 2011. This assessment is based on the fact that Google’s search engine held very high market shares in all EEA countries, in most cases over 90%. This has been the case consistently since at least 2008, the period examined by the Commission.

In addition, there are high barriers to entry in these markets, partly due to network effects: The more consumers use a search engine, the more attractive it becomes to advertisers. The profits generated can then be used to attract even more consumers. Similarly, the data that a search engine collects about consumers can in turn be used to improve results.
Google has abused this market dominance by giving its own comparison shopping service an illegal advantage. It only gave its own comparison shopping service a prominent position in its search results while demoting competing services. It nipped the performance competition in the comparative shopping markets in the bud.

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

The Effects of Google’s Illegal Practices

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

Given Google’s dominance in general internet search, its search engine is a major source of traffic. As a result of the illegal practices of Google, the traffic to Google’s comparison shopping service has increased significantly, while the competitors have suffered considerable traffic losses in the long run.

Shopping service increased its traffic by 45 times in Great Britain, 35 times in Germany, 19 times in France, 29 times in the Netherlands, 17 times in Spain and in Italy by 14 times increased.

After the downgrades made by Google, however, the traffic to competing comparison services fell significantly. The Commission found concrete evidence of a sudden drop in traffic to certain competing websites of 85% in the UK, up to 92% in Germany and 80% in France. These sudden declines could not be explained by other factors either. Some competitors have adapted and managed to recapture some of the traffic, but never all of it.

Coupled with the other findings of the Commission, this shows that Google’s practices have stifled competition in price comparison markets and are depriving European consumers of real choice and innovation.

Evidence Collected

In order to reach its decision, the Commission has compiled and analyzed a wide range of evidence, including:

1) documents from both Google and other market participants;

2) very large amounts of real data, including 5.2 terabytes of actual search results from Google (around 1.7 billion searches);

3) experiments and surveys, particularly analyzing the impact of visibility in search results on consumer behavior and click-through rates;

4) financial and traffic data showing the commercial importance of visibility in Google search results and the impact of a downgrade; and

5) a comprehensive market survey of customers and competitors in the affected markets (the Commission sent questionnaires to several hundred companies).

Consequences of the decision

The fine of € 2,424,495,000 imposed by the Commission takes account of the duration and gravity of the infringement. In accordance with the Commission’s 2006 fine-tuning guidelines (see press release and MEMO), the fine was calculated on the basis of the value of Google’s revenue from its price comparison service in the 13 EEA countries concerned.

The Commission’s decision calls on Google to cease its illegal behavior within 90 days of the decision being taken and to refrain from any action that has the same or equivalent purpose or effect. In particular, the decision calls on Google to adhere to the simple principle of equal treatment of competing price comparison services and its own service:

Google must use the same procedures and methods to position and display competing comparison shopping services in the Google search results pages as it does for its own comparison shopping service.

It is Google’s sole responsibility to ensure compliance, and it is up to Google to explain how it intends to do so. Whichever option Google chooses, the Commission will closely monitor Google’s compliance with the rules and Google has a duty to keep the Commission informed of its actions (initially within 60 days of the decision, then on a regular basis Intervals).

Should Google fail to comply with the Commission’s decision, it would have to pay up to 5% of the average global daily turnover of Alphabet, the parent company of Google, for non-compliance. The Commission would have to determine this non-compliance in a separate decision, with any payment made retrospectively from the time the non-compliance started.

Finally, Google must also expect civil damages actions that can be brought before the courts of the member states by any person or company affected by its anti-competitive behavior. The new EU Antitrust Damages Directive makes it easier for victims of anti-competitive practices to obtain damages.

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