New America
Tim Wu, seen here in 2018, has been one of the leading proponents of restoring antitrust and competition law.
When Google’s chief economist Hal Varian took the stand in the company’s historic antitrust trial, it was as though the past 40 years of the economics profession went on trial as well. A professor emeritus at the University of California, Berkeley, a Guggenheim fellow, and author of one of the most widely taught textbooks in American universities on network economies, Varian is a luminary in the neoclassical field, with theorems and laws ascribed to his name. In particular, he is widely credited as the progenitor of the term “the power of defaults,” referring to the market share implications of a company that is made the default option, say as a search engine preset on a web browser or mobile device. As it happens, this is a critical axis point in the Google case, though Varian disputed his coinage on the stand.
Varian’s examination dominated much of the first week of U.S. v. Google, as Justice Department lead attorney Ken Dintzer grilled him on concepts such as scale, network effects, defaults, and efficiency—in short, many of the economic principles that form the bedrock of the tech sector today.
In this sense, his examination as the government’s first witness stood in for the stakes of what the DOJ is trying to accomplish in this trial: re-establish the power of law over an economic model that’s reigned for decades delivering the giants of today.
Tim Wu, the former White House competition czar under President Biden, has been one of the leading figures in antitrust for overturning that economic consensus and restoring antitrust and competition law. A progenitor in his own right, Wu’s books The Attention Merchants and The Curse of Bigness galvanized momentum behind antitrust scrutiny of Google and other tech firms. During his time inside the White House, Wu was one of the key architects behind President Biden’s competition policy executive order, aimed at reinvigorating the country’s anti-monopoly tradition. In particular, Wu helped craft and carry out what’s called the “whole of government approach” to competition.
Wu attended the second day of the Google trial at the D.C. District Court, and has followed the first week through transcripts. When I reached Wu by phone on Friday to catch up on the historic week, he was on a subway in New York, having just left Rockaway Beach, several miles away from his office as a law professor at Columbia University. We discussed the evidence that’s been presented thus far, how both sides are establishing the foundations for the remainder of the trial to come, and the broader implications for the anti-monopoly movement.
Luke Goldstein: There’s been a lot of hype about the significance of this trial in building momentum for antitrust enforcement, though some anti-monopoly reformers have tempered the stakes of the outcome. The DOJ does have another case against Google focused on its monopoly over digital advertising. How high do you think the stakes are in this trial?
Tim Wu: I see two main impacts at play. There’s what you could call the innovation or industry stakes and then there’s the political and legal stakes.
I think that collectively the question over the next decade will be can Google proceed with business as usual: pay for defaults, pay to prevent competitors getting a foothold, and pay off companies that could enter the market either by buying them through mergers or like with Apple to pay them not to have their own search engine.
That sort of sets the rules for the next ten years, and will likely influence the contests over AI and other areas where Google is under stress. And I think that’s the tenor and that sounds pretty consequential.
Now on the political stakes, obviously, there’s a lot of people in the profession and also associated with defense clients or the Chamber of Commerce who badly want this Brandeisian enforcement-oriented antitrust to go away, and return to the technocratic world we had before where no one, rarely ever brought cases, or if when the government did they’d settle before trial with consent decrees so that lawyers can feel good about themselves.
You never saw breakups and that was a comfortable world for a lot of people. There was enough work [for the lawyers] that was sustaining for that group, the bar, and for their clients it was fine.
Now as a former official of the Biden administration, I think that if we lose all these cases, it’s a setback, even though I am of the view we don’t have to win every case. I think that was a curse for us during the Obama administration where you had people who were by their nature very risk-averse. This DOJ has swung hard, and when you swing hard, you’re gonna have strikeouts. But if you only have strikeouts … I’m not the kind of progressive who likes losing. There’s a certain lost-cause mythology that affects any movement. That’s not what I think we have an interest in.
How do you view the two approaches to Google’s monopoly in this case focused on search engines and the other case on digital advertising? Are there benefits to teeing up this case first?
Well, putting the court aside, this case is easier to explain to the public or even an expert or average lawyer. Adtech is extremely complicated even though that’s also a good case. Google controls the homepage of the internet and controls the advertising behind it so it’s two sides of the same coin, but they’re different techniques.
Whether it matters or not, it’s easier for the public to understand that Google has paid money to Apple to stay out of search and not face any uncomfortable challenges, and Samsung too.
You were in court on the second day. What did you make of the strategy to put Hal Varian on the stand first and what did you think about his examination?
First with Varian, I thought it was ingenious, strategically for three reasons. So at the kind of sensitive level, having all kinds of economic messages that Google doesn’t like being heard, presented by their own economists’ documents at the beginning, is going to make Google’s expert witnesses seem very revisionist.
If the government put on its case, and then Google rebutted it, that would be conventional. But here they said here’s what the other side was really thinking. So then when Google puts on their expert, it’s clear that they found someone to say what they want to put a happier face on what they wanted to say. It’s sort of pre-impeachment of the witness, in legal speak.
I also thought it was brilliant to the extent that people are watching to put a totally different face on Google to start the trial; as opposed to this image often associated with Google of a sort of overgrown boy trying to do the right thing, you instead here have this Bill Gates type of figure, who dissembles and debates the meaning of normal English words, spending ten minutes arguing that he doesn’t know if Amazon search is narrower than Google search; [he] just can’t figure that out. He also just came off as kind of conniving, and constructed.
Even when Google’s own people are saying, “Hey you know, our data is what makes our search good,” and he denies it, that makes his whole economic message seem contrived, and manipulative right from the beginning.
So that’s a totally different face on Google and sets up the sort of soft economic power that they’re exercising, as the next one just shows and it was pulling the strings. So I thought it was great.
What key moments stood out to you from the testimony of Caltech behavioral economist Antonio Rangel?
So in the world of how antitrust is conducted and considering what’s the dominant ideology, you first humiliate a prominent industrial organization microeconomist with very neoliberal leanings [Varian].
Then you follow that up with a behavioral economist showing that Google knew how it was manipulating users [through default settings] and exploiting them.
It was powerful testimony and I think it was intentional that the DOJ brought in an economist who’s not a part of the tiny cartel or cartel of IO economists who think they run the show; some were friends of the government in the past so it took some bravery to diverge from the status quo. Carl Shapiro [who was a consultant at Google and an Obama administration antitrust enforcer] is one of those economists, and the government put his emails [with Varian] directly up on the screen as damning evidence.
I also thought the fight over what makes Google search better was amazing. Google has its party line that it’s all about quality of product and everything else doesn’t matter. But then documents show Google’s own employees saying no, actually our control of data is what makes us better, and then being policed for not following the party line. Those emails were strong evidence.
I’m struck from watching this case that Google keeps saying this line that “competition is a click away. We have better quality, end of story.” They then suppress anything internally that shows even they know it’s not true, even though they then pay billions for default agreements.
Lots of the evidence so far seems to illustrate that Google clearly intended to monopolize the search engine market and was aware of potential antitrust violations. How important is proving the intent to monopolize versus anti-competitive impact? To what extent was this relevant in the last major antitrust case against Microsoft?
This is a hot-button issue in antitrust law and there’s lots of disagreement. Intent is a high bar but some kind of awareness of what a monopolist is doing and a plan or design to monopolize has tended to have a compelling effect in court and technically speaking is a substitute for other types of evidence.
In the Microsoft case, which has been the blueprint for this one in many ways, you had the “tidal wave” memo. In that memo, the CEO announces that he’s concerned about the competitive effect and announces that the corporate strategy is to do what they can to maintain the Windows monopoly against any potential challengers. You get clear intent. So I think, showing that they’re intending to preserve their market power goes a long way and could even be enough to win the case. But you can also do it with economic evidence, showing that they undertook conduct and that they’re a monopoly. It’s kind of like a belt and suspenders. They’ll do it but they don’t need to, and actually with Microsoft it did seem to help.
What do you see as the parallels and differences between the Microsoft and Google trials?
I think the comparison is inescapable and important because the Microsoft case still has controlling precedent in the [D.C.] circuit.
The main difference is not necessarily legal. Monopoly maintenance is when a firm has a monopoly, undertakes conduct designed to exclude a competitor. I think the main difference between different cases is in Microsoft, you had effectively a dead body underground [Netscape]. That was obvious. It was easy to see that Microsoft had targeted and was using its power to keep it out.
Google almost feels like in some ways it was even more proactive at using their money to build defenses just against a potential Apple competitor or against anyone who might show up on Samsung or Android. They were clearing the field and using acquisitions to do it. There’s a lot more money being spent in the Google case to maintain monopoly.
Both Microsoft and Google used the stick against competitors. But Google, consistent with its corporate personality [Don’t Be Evil], learned very early on that the carrot is just as good as the stick. The lesson they learned from Microsoft is that it was better to be loved than to be feared. That’s very characteristic of Silicon Valley, 2010.
In some ways the main question then was: Will the law treat the carrot the same way as the stick? Google basically said we’ll all win, we’ll give you a lot of money, stay out of our business. That’s why the amount of money Google paid for Android and Apple default has come up so much in the trial.
It’s a test of the law. Evidence of the stick can be a bit more visceral when it comes to litigation.
What do you make of Google’s strategy so far? They argue that their product is superior and also that antitrust can’t say anything about market outcomes. How do you think that legal argument will play with the judge?
It’s a classic trial strategy if you don’t have the law on your side, to announce what you think the case is all about and repeat it over and over to try to convince the judge eventually to believe it too. They have a possible inference of antitrust law but it’s not the statutory standard.
The strategy usually works if you think the judge is on your side and just needs a rationale to rule the way [you] want, but that’s not the impression I got from this judge. He’s not trying to get rid of this case.
I think the problem for Google is they haven’t updated their legal defense.
I was on the FTC team that investigated Google in 2012 and Google is using the exact same talking points. It’s over a decade later and things have changed since then. You could say it’s message discipline but a lot of those arguments are glib and designed to work on an early-2010 press corps and for congressional audiences.
Just saying competition is a click away doesn’t work the way it used to. With behavioral economics we now can see that a lot of those arguments are horseshit. It’s not 2012 anymore.
They are running more of a public relations approach targeted for congressional hearings than judicial. A member of Congress only has so much time to respond and is more easily swayed by lobbying. Judge Mehta thankfully has a longer attention span than Congress.
Google’s quality and brand has always been its strongest case. And it was really strong in 2012 because they’d just defeated a bunch of companies. That was all fresh. But today, even despite how concentrated the economy is—two types of beers that are virtually identical, a few rental cars—just having one search engine is unusual and as that’s dragged on it’s harder to argue that it’s natural.
