The Google Rules: The “Critical Input” Theory Of Antitrust

by takingpitches

I have little knowledge of the Google/ITA matter and thus no great insight into the settlement.  But I am skimming some of the DOJ settlement papers and I have a quick thought.

The logic of the settlement seems to flow from labeling ITA’s QPX a “critical input.”  It is not at all clear what “critical input” means, because the papers don’t state that QPX is the only pricing and shopping system available or that others cannot or have not in fact created their own competing or in-house pricing and shopping systems (the papers mention Sabre, Amadeus, Expedia, and Travelport).  Does “critical input” mean that Orbitz, Kayak, and Bing have become dependent on QPX and thus the purchase of QPX puts that element of their business plan in jeopardy and leaves them scrambling for an alternative?

The remedy flows from the “critical input” logical move and includes mandating that QPX remains available to those who use it as an input and that it continues to be developed in the same manner so those who use it as an input can continue to.   On one hand, I understand the logic.  By keeping an input available, it allows the downstream competition between  Orbitz, Kayak and Bing to continue.

However, it has the smell of freezing the market in that structure, such that there is a guaranteed input for the downstream market. Both the input and downstream  markets are relatively new; should we be freezing them in place?   Should we be foreclosing the possibility of massive disruption?  Who knows?  Google might have had a better notion of how to make travel information available and it may have planned to disrupt the entire market and turn it upside down with a different model.  This remedy at least to some extent limits Google’s ability to disrupt the  market.  In the short-term, there are probably benefits in terms of avoiding dislocations that happen with disruption, but outside the immediate short-term, it is hard to see how it does not dampen innovation, including by forcing both the other input and downstream players to adjust to potentially Google shifting the QPX business model.  The notion in the papers that removing an independent ITA reduces innovation in the market is unsupported and seems to at least superficially defy common sense. Whatever Google is, it is an innovative company, and it is buying ITA to enter as a competitor in travel search. (Isn’t trying to enter a new market the very definition of being innovative minded?)

Perhaps there is a risk.  But isn’t it too early to tell?  If the risk is that Google will monopolize the market (when it’s not yet even in the market according to the papers), couldn’t the government pursue that issue if and when it arose?

Most importantly, I am not sure what the limiting principle is.  Every industry and business relies on inputs that are “critical” from the perspective of a customer who has a preference for or has locked itself into the input.  This is business 101 and smart businesspeople hedge big business risks in multiple ways by not single-sourcing or perhaps by bringing in-house something “critical”. The implication is that another option to hedge business risk is to get the government to freeze the market structure for you.

Perhaps the limiting principle is that what Google touches turns to a “critical input” like Midas and his golden touch, and a different logic applies when Google is involved. I doubt the government intended this, but if that’s the message that is perceived, it would be truly unfortunate from the perspective of fostering and supporting innovation and welcoming the possibility of disruption

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