Consumers Are Charged More As A Result of Google’s Search Monopoly

merchant must pay more to win top placement, so winning merchants raise their prices to consumers to cover their added costs. Before the business model could be implemented, Google needed to clear the field of competing CSEs.

And it did; here’s how. Until its Universal Search was launched, Google used its secret algorithms to return results that it deemed most relevant to a user’s request, ranked according to relevancy. The algorithms were Google’s “secret sauce” and their effectiveness ensured the search engine’s popularity. Users understood that the Google’s results were based on relevance to their request.

Universal Search changed that. Google began emphasizing its own services in search results. Algorithms were tweaked so that rival services were penalized and began appearing lower in the results. Consumer Watchdog’s June 2010, study, Traffic Report: How Google Is Squeezing Out Competitors and Muscling Into New Markets, (http://www.consumerwatchdog.org/resources/TrafficStudy-Google.pdf) documents the impact on such competing services as Mapquest, which saw its traffic plunge 50 percent in the two years after the change was made. Tellingly Google Product Search, the precursor to Google Shopping, soared when it was featured in Universal Search in December 2007. In November 2007, Google Product Search had about 1.3 million unique visitors. The next month, that figure shot up to11.9 million. By December of 2009, Google Product Search had more than 20 million unique visitors, making it second only to Shopzilla with 21 million, a gain of more than 1200 percent. Because of its search monopoly, Google was able to unfairly promote its own services and penalize competitors in what consumers had come to believe and expect was a neutral search engine that returned results based on relevancy to a request. Instead, results were manipulated to maximize Google’s profits.

Once the field was effectively clear of much of the competition from other CSEs, Google changed its business model. Google Product Search became Google Shopping and merchants were required to pay to be included in the results. Economic theory holds that a business exercising monopoly power will maximize its profits and force prices higher for consumers. Consumer Watchdog’s test comparing prices through Google Shopping with those offered on competing CSEs found higher prices through Google in eight of 14 cases. Below is an example of the results when “digital camera” is entered in the search box.

The Product Listing Ads (PLAs) in the upper right of the page are returned as part of Google Shopping. In Google Product Search, before merchants began to pay for placement, such listings were based on the best price. Now with Google Shopping, merchants bid for inclusion. Clicking on the PLA takes the user directly to the merchant’s page and the user doesn’t see other prices. Often our test found better prices can be located on a competing CSE. Here is how Consumer Watchdog conducted our test on Nov. 11 and Nov. 12: We entered 14 general product queries in our Google search bar. The 14 categories entered were: games Legos, dining room chair, toaster, electric drill, iPad, dinnerware, hammers (entered twice), electric mixer, toaster oven, laptop, telephone headset, external hard drive and camera. We then picked one of the products pictured in the Google Shopping results box, noted the price, which we called the “Google price” and clicked though to the merchant page. We then noted the exact name and details of the item and searched for the exact same item on Shopzilla, Pricegrabber and Nextag.

As the chart below shows, Consumer Watchdog was able to find a lower price for eight of the 14 prices. In six cases the lowest price was the same as the “Google Price.” The “Google price” ranged from 9 percent to 67 percent more than the lowest price found on one of the CSEs. Some have suggested that Google’s business tactics enabled by its monopoly position only damage competing services. In fact Google hurts consumers in two ways. First, Universal Search populates the top of the results page mainly with results from Google’s own product lines. This moves the Internet giant closer to an ecosystem where real consumer choice no longer exists. Second, as our test shows, consumers are paying higher prices because of Google’s behavior. And Google is behaving exactly as is expected of a monopolist in the exploitive phase of market dominance.

Google has developed a substantial conflict of interest. It no longer has an incentive to steer users to other sites, but rather to its own services. It is becoming even more effective at this and has a greater incentive to engage in manipulation now that it is merging data collected across all its services. The only way to deal with this conflict is to remove it. There needs to be a separation of Google’s different services and assets. At a minimum any remedy must insist that Google use an objective, nondiscriminatory mechanism to rank and display all search results – including links to Google products.

However, to remedy the damage that has already been done, competing services should be listed ahead of Google services in search results for the next five years. #####

Read the full report (PDF).