California, July 11: State Attorney Generals (chief legal advisor to the state government) from 36 states, as well as the District of Columbia (acting as Plaintiff), have filed an antitrust lawsuit against Alphabet Inc’s Google (defendant), for its Play Store practices. On Wednesday, the case was filed in federal court in the Northern District of California. (A plaintiff is someone who files a case against someone, while a defendant is someone who defends himself in court against that case.)
What is an Anti-Trust Law?
Let us look at an example to see what these laws are and why they are important.
Scenario 1: Assume your neighbourhood has a street lined with toy stores. If you want to buy a toy, you have many stores to choose from and can select a store that offers the toy at the best or lowest price. Toy stores have to compete in such a market to earn a profit and, as a result, deliver the best services to customers. Toymakers also have a choice of outlets where they can market their toys. Both toy manufacturers and competing toy stores are looking for new ways to entice shoppers. In this situation the customer benefits from the competition in the market.
Scenario 2: Assume your neighbourhood has only one large toy store. To be able to serve the people in that area, all toy makers must sell their products through this store. People also have only this store to go to in order to purchase toys. When a product or service can only be purchased from one supplier in the market, this is referred to as a monopoly (from the Greek monos, one + polein, to sell). This one toy store conducts business honestly, offering good opportunity for all toy makers to sell their products while still charging the buyers reasonably.
Scenario 3: The situation is fairly similar to that of Scenario 2. However, the toy store intends to take advantage of its monopoly status in order to make greater profits. To maximise earnings, it favours only select toy makers willing to pay a premium price to be a part of that store. Smaller toy manufacturers who cannot afford this premium are side-lined, and their products are not advertised or sold at the same level as those who can. In addition, the toy store enters into an agreement with toy makers that a portion of the sales price will be retained by the toy store as a fee for each item sold. The pricing of the toys is likewise fixed in order to maximise profit. The buyer has no choice but to pay more for toys that would have been less expensive in scenario 1. To break free from the monopoly, a small toymaker launches his own shop. However, because of its market influence, the larger store with a large market share and strength will not allow this store to grow and thrive. Toymakers and customers suffer losses, while the toy store gains handsomely and grows in power. This results in an illegal monopoly.
In your opinion, which scenario is good for just one player, and which scenario is good for everyone? According to classic economic theory, competition (scenario 1) leads to the overall good, while monopoly (scenarios 2 and 3) tends to benefit one player at the expense of all others. As a result, the governments enact laws to protect consumers and regulate how businesses operate. These rules protect consumers from exploitative commercial activities while also ensuring fair competition. Simply put, they prevent businesses from acting dishonestly in order to make a profit. These laws are known as anti-trust laws.
Why is Google being sued in an anti-trust lawsuit?
According to statistics, the current global smartphone user population is roughly 3.8 billion, which equates to 48 percent of the world’s population. On 76 percent of these smart phones, Android is the mobile operating system. Similarly, the Google Play Store distributes over 90% of Android apps in United States, while no other Android store has more than a 5% of market share. As a result of this, Google is a monopoly in the App Store market and acting line a company in Scenario 3. According to a lawsuit,
- Google is engaging in anti-competitive (not allowing competition to grow) behaviour in its Play Store dealings.
2. Google’s monopoly in the Android play store market is not merit-based competition, but perpetuated by Google, by imposing technological and legal conditions in the Android ecosystem.
3. When a user attempts to download an app from a store other than Google’s Play Store, it displays deceptive security warnings that the application may be harmful or a malware threat in order to discourage consumers from downloading apps from sources other than Google’s Play Store. A similar app may be cheaper outside of the Google Play store, but Google will discourage users from downloading it. This deprives the buyer of both options and competitive prices.
- Similarly, Google greatly discourage or outright prohibits app developers from distributing on in-app purchases and subscriptions.
- Google has attempted to “buyoff” competitive enterprises. It has also offered incentives to make their apps and app store as white label for the Google Play store. (A white-label product is one that is created by one company but is rebranded by another to appear as though it was manufactured by them.) It tried it with Samsung’s app store, the Galaxy Store. Amazon’s intentions to use its own distribution shop on Android have also been impeded by Google.
- Google’s activities have effectively shut down potential competitors, preventing them from gaining the size required to challenge Google’s supremacy.
The lawsuit seeks to restore competition and prohibit Google from participating in similar behaviour in the future.
Other similar lawsuits
This is the fourth antitrust complaint filed against Google in the last year by US government regulators. Google is already embroiled in antitrust lawsuits for illegal monopoly over the online search and advertising industry and harming consumers and advertisers in the process.
Response from Google to the Lawsuit
In response, Google’s Senior Director of Public Policy Wilson White called the Anti-trust lawsuit – “A meritless lawsuit that ignores Android’s openness. A lawsuit that ignores choice on Android and Google Play”.