The Power of Defaults
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The Power of Defaults
On Day 3, DOJ continued to develop its argument that defaults made all the difference for Google.
How much do defaults matter?
That is one of the most important questions that divides the government and Google in this case, because the answer goes a long way in explaining why Google search has been able to amass such dominance over other search engines. If defaults matter a lot, that suggests that consumers aren’t necessarily using Google because of its quality. But if defaults don’t matter that much, that strengthens Google’s claim that people use Google because it’s the best. (Of course, Google can’t claim that defaults don’t matter at all, because otherwise there would be no reason for Google to be paying billions of dollars to Apple and other companies for default search engine status.)
DOJ obviously thinks that defaults matter a lot, which is likely why they have called Caltech Professor Antonio Rangel so early in their case. Among other related areas, Rangel specializes in behavioral economics — and between Day 2 and Day 3 of the trial, the DOJ spent several hours developing Rangel’s expert witness testimony that “search engine defaults generate a sizeable and robust bias towards the default.”
Google used its cross-examination of Rangel to try to challenge several aspects of Rangel’s testimony. Perhaps most notably, Google’s lead lawyer John Schmidtlein presented Rangel with documents that showed Bing mobile default placements having a limited effect on consumer search queries. Schmidtlein threw Rangel’s own words back at him, asking whether the effect of Bing’s default looked “sizeable and robust.” Rangel prefaced that he didn’t have all of the data he needed, but agreed that the effect of the Bing default in that specific device at that specific time “looks small.”
Below are some additional observations from the action on Day 3. And if you’re interested in reading more about Rangel’s testimony, this article from Bloomberg reporters Davey Alba and Leah Nylen gives a good breakdown.
Judge Mehta’s questions
Judge Mehta doesn’t seem likely to tip his hand too much on his view of the case as the trial unfolds, but the questions he personally asks the witnesses are probably the best window the lawyers and the public have into how he is thinking. I haven’t been able to take away too much from Judge Mehta’s questions so far, but one of his questions to Professor Rangel did catch my attention today.
Judge Mehta asked Rangel something to the effect of how Rangel would analyze consumer harm with respect to a product that doesn’t charge. This is at least the second time Judge Mehta has asked a question relating to the fact that Google search is free to users; as I noted in my recap of Day 1, Judge Mehta asked Schmidtlein during Google’s opening statement how he should define a market when there is no price for the product.
It makes sense that Judge Mehta is curious about this as the applicability of US antitrust law is largely determined based on application of the consumer-welfare standard and the most classic form of consumer harm is higher prices. The fact that Google is free doesn’t necessarily mean there can’t be any harm to consumers — and the DOJ's opening statement1 previewed ways in which it would argue Google’s defaults harmed the public. But it does mean that this case looks different from most other antitrust cases. Judge Mehta’s questions suggest he is actively grappling with how to handle this difference.
Google’s VP of Android Platform Partnerships testifies about Google’s Android deals
After Professor Rangel finished his testimony, the DOJ called Google’s Vice President of Android Platform Partnerships Jim Kolotouros to the stand. The DOJ’s direct examination of Kolotouros so far has been fairly dense and technical — mostly about his role in negotiating Mobile Application Distribution Agreements (MADAs) and Revenue Share Agreements (RSAs) with Samsung and other Android device-makers. We did see one set of numbers, though: an email detailing negotiations between Google and Samsung indicated that Samsung was pushing to increase the revenue share it received from Google from 25% to 30%.
Most of the specifics of Google’s agreements with different Android device-makers have been designated as confidential, so some of Kolotouros’s direct- and cross-examination tomorrow will be sealed to the public. However, the DOJ said it still had about 20 minutes of direct examination that would take place in open court.
One thing I will be paying attention to during those final 20 minutes: will the DOJ ask Kolotouros about his use of history-off chats? Kolotouros was mentioned several times in the DOJ’s motion for sanctions against Google for its use of history-off chats, but the government hasn’t brought the issue up yet in its questioning.
I’ll be in court again tomorrow to follow the action, but you might not get an email update from me. Judge Mehta is using Friday afternoons to deal with matters in his other cases, so the trial will be stopping at lunchtime — and part of tomorrow’s testimony will be sealed as well. I’ll make sure to send some updates on my X/Twitter either way, though.
See slide 4 of DOJ’s opening statement presentation.
The Power of Defaults
The classic idea of a firm monopolizing an industry is that it raises price and reduces output. The classic criticism of the US government’s use of antitrust law is that it goes after companies only on the basis of their size and often makes cases against firms that have been lowering prices. That is they apply antitrust law to help competitors rather than consumers. I don’t think anyone is looking at this case correctly. The real problem is consumers don’t know what they are paying for google’s services. They are paying by giving to google valuable information about their behavior. This occurs when households use gmail, as well as when they do searches. Similarly with other large internet companies such as Facebook. The way to help consumers in this environment is to require these firms to share the revenue with their users.
The government seems to not be seeing the angles here. Google is right that defaults don't matter much. They found that out when they dropped default payments to Firefox and people changed to Google anyway. Why then is Google still paying Apple... and not just a small default fee, but tens of billions a year? They are paying them to not start an Apple search engine business. Google is not afraid of Bing, very concerned about a potential Apple search engine. It will be interesting to see how Google argues that A) Defaults don't matter B) We are paying Apple $10b a year... for nothing.