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The case of Google illustrates the flaws in antitrust laws

Tuesday, September 25, 2012 – What has all the appearances of a technological war is being transformed into a legal battle in the case of Google in Europe and in the United States. The popular search engine must defend itself against charges that it has abused its dominant market position to the detriment of users, who spend 3.4% of their Internet time using search engines. According to Marie-Josée Loiselle, associate researcher at the Montreal Economic Institute (MEI), the case of Google and the upcoming nomination of a new Commissioner at the Competition Bureau of Canada offer an opportunity to take stock of certain flaws in antitrust laws.

In an Economic Note published today with the MEI, Ms. Loiselle explains that competition is not reducible to a list of companies or their market shares. It is rather the number of potential competitors that counts. In the highly coveted high tech sector, there is no shortage of pretenders to the throne.

“The application of competition laws to the high tech sector is particularly delicate, especially because of the speed at which the sector evolves. A company can have a quasi-monopoly one moment, and a few short years later be displaced by a new technology. That’s what happened to IBM with personal computers, and to Sony and its Walkman, and more recently to the MySpace networking site. I don’t think we should penalize a company because it revolutionizes the market and gets consumers to flock to its new product,” says the author.

Furthermore, cases of “regulatory capture” can occur when less efficient industry players try to fight a dominant company using the legal system instead of doing so by reducing their prices or offering better products. This has the consequence of distracting the company from its innovative activities since it must pay out large sums of money to defend itself before the courts. At the end of the day, the real losers from such a slowdown in innovation are consumers.

The Economic Note entitled Flawed Competition Laws: The Case of Google was prepared by Marie-Josée Loiselle, associate researcher at the MEI. It can be consulted free of charge on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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Interview requests: Ariane Gauthier, communications coordinator, Montreal Economic Institute / Tel.: 514 273-0969 ext. 2231 / Cell: 514 603-8746 / E-mail: agauthier@iedm.org

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