Stephen Houck, May 14, 2012
In the wake of the U.S. government’s unsuccessful prosecution of IBM (begun in 1969 and dropped in 1982), many knowledgeable observers believed that of the Sherman Act was no longer relevant and was too cumbersome to apply to fast-moving high-tech companies. The government’s prosecution of Microsoft, settled in 2001, proved them wrong.
Government antitrust enforcement agencies are now considering the applicability of to certain of Google’s practices, like its display of thematic search results. It is crucial that the government get it right. For one thing, an unsuccessful enforcement action is an enormous drain on resources that means significant lost opportunity costs for the government agency. An erroneous enforcement decision also risks undermining hard-won, infrequent government victories like Microsoft by creating precedents that will make future enforcement even more difficult than it already is today. And, most importantly, an ill-conceived enforcement action, especially in a rapidly evolving business like search, may actually impair consumer welfare by deterring and distorting innovation. This is a particular concern where the objective of those who encourage government action is to protect less efficient competitors rather than consumers.