The European and American competition authorities recently announced that they were investigating Google's Android operating system for smartphones. They accuse Google of abusing its dominant position to harm its competitors. These announcements are surprising given the dynamism of competition in the cellphone market.
Specifically, the competition authorities accuse Google of taking advantage of its dominant position in the smartphone market to impose some of its own applications, such as the Google search bar. Indeed, Android represents 74.5 per cent of the European market and 58.9 per cent of the American one.
The authorities fear that this preference for its own applications interferes with competition from other applications that offer the same kinds of services. In other words, Google pre-installs applications on Android phones to give itself an advantage over its competitors, not because it is convenient for the user, who can then use the phone as soon as it is unwrapped.
A publication from EPICENTER explains why the European Commission and the Federal Trade Commission are wrong in this case.
First, Google is quite transparent in its dealings with phone manufacturers. In addition to providing the operating system for free, the US company offers them several options. The manufacturers' only obligation is to ensure that their phones are compatible with other Android phones.
If they agree with this condition, they then can choose whether they want to agree not to create "sub-versions" of Android. If they accept, they are allowed to promote their phones with the Android logo, and openly display "Android-compatible."
If phone makers agree with these first two conditions, they then have a third option: to pre-install Google applications, including Gmail, Google Maps, YouTube, etc. It is only here that the European and US competition authorities have a problem.
This means that manufacturers like Samsung or Motorola can offer Android phones without Google applications, and many already do.
To name a few, Huawei and Vega in Russia are selling Android phones without Google applications, but with the applications of their main Russian competitor, Yandex. The Finnish manufacturer Bittium also sells some models without Google applications. In China, 70 per cent of all Android devices are sold without Google applications pre-installed.
Other manufacturers go even further. Besides not pre-installing Google applications, some also reject Google's second option and create a sub-version of Android that they therefore can't call "Android" anymore. This is for example the case of the French manufacturer Archos, which names its version of Android the "GraniteOS." The American company Amazon does the same thing and calls its own version the "Fire OS."
Nothing forces smartphone manufacturers to pre-install Google applications. When they do so, it is probably because their users like these applications and genuinely want to have them.
In addition to being wrong on a purely technical level, this kind of investigation, and the prosecutions that may follow, result from a misunderstanding of the process of competition. By definition, competition is unpredictable and surprising. It can happen where you least expect it.
Remember the great trial of Microsoft, which was sentenced for abusing its dominant position by selling its Windows operating system with its browser and media player pre-installed. It was accused of the same thing as Google is in the current case, which is to say that it was preventing competition from other browsers and other media players.
Yet it is without the help of the EU that several new players have become popular, including Firefox, Chrome, and iTunes. Today, Microsoft's browser accounts for less than half of the market.
The same story repeats itself continuously. We see a large company and we imagine that it will always dominate the market. Before Microsoft, it was IBM. And long before IBM, in the futuristic novel by Aldous Huxley, it was Ford. Yet these large companies all sooner or later lost market share to new players. It seems reasonable to believe that Android will continue to enjoy a significant presence in the smartphone market, but nothing is set in stone.
This lawsuit is therefore wrong both from a purely technical point of view, and from the perspective of economic analysis. It is interesting that this news came barely a week after the Competition Bureau of Canada abandoned its investigation of Google regarding its dominant position in the market of Internet advertising. The EU and the US Federal Trade Commission should follow Canada's lead in this case.
Mathieu Bédard is Economist at the Montreal Economic Institute. The views reflected in this op-ed are his own.
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