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Good morning, and welcome to the Essential California newsletter. It’s Thursday, Jan. 26.
“Hey, Google, are you a monopoly?”
The government’s answer is yes.
This week the U.S. Department of Justice, joined by California and seven other states, sued the tech giant, alleging it has an illegal stranglehold on online advertising.
The company “used anticompetitive, exclusionary, and unlawful means to eliminate or severely diminish any threat to its dominance over digital advertising technologies,” according to the civil antitrust complaint.
The federal and state departments of justice want “to halt Google’s anticompetitive scheme, unwind Google’s monopolistic grip on the market, and restore competition to digital advertising,” the complaint reads.
“In many cases, a business’s online presence can make or break its success, and advertising is a key component in that equation,” California Atty Gen. Rob Bonta said in a statement. He added:
“Google’s anticompetitive practices and obsessive need for control of ad tech markets has not only controlled pricing, but has stifled creativity in a space where innovation is crucial... it is in California’s best interest to ensure that creativity, innovation, and competition in technology are protected.”
In response to the lawsuit, the Mountain View, Calif., company said it will “vigorously contest attempts to break tools that are working for publishers, advertisers, and people across America.”
“DOJ is doubling down on a flawed argument that would slow innovation, raise advertising fees and make it harder for thousands of small businesses and publishers to grow,” Dan Taylor, Google’s vice president for global ads wrote on the company’s blog.
With major industries like tech, agriculture, aerospace, entertainment and healthcare concentrated in California, the state — which is closing in on Germany for the title of fourth-largest economy in the world — has a lot to wrangle.
“California has been a front-runner in state antitrust enforcement,” said Diana Moss, president of the American Antitrust Institute. The progressive nonprofit studies big industry and advocates for strong enforcement of antitrust laws.
The state frequently signs on to federal complaints, “which gives heft to antitrust claims,” she said, adding that California also has “a vibrant private enforcement community” — as in private attorneys that bring antitrust action against corporations.
The action against Google has been a long time coming, Moss told me, as it and other tech titans “acquired their way to dominance” without many challenges from regulators.
“There has been a lot of deference given to ... innovation that is promised by big tech mergers and not interfering with the VC-based startup model that feeds the big tech acquisition pipeline,” she said. “Both are terrible reasons for the government to stand down on merger enforcement in the sector.”
The Golden State has a long history of challenging big business, going back to the early years of its statehood, when railroad companies were running amok.
The railroad industry’s power went largely unchecked in the post-Civil War era as train technology expanded, quickly becoming an indispensable way to move goods and people. That allowed companies to charge different rates to passengers, farmers shipping their harvests and the merchants and shippers who needed products hauled across an expanding nation.
The industry also had the power to condemn land it wanted to build routes through and received financial aid from federal, state and local governments. The bigger companies bought up smaller competitors, then divvied up the markets among the giants. The railroad tycoons’ expanding reach began to alarm some politicians, including in California.
Newton Booth, the Golden State’s 11th governor, held that office as a Republican but later splintered off to join a short-lived anti-monopoly party before being elected to the U.S. Senate. He holds the distinction of being California’s sole third-party U.S. senator.
In his 1871 inaugural address as governor, Booth vowed that his administration would “in a greater degree check one of the growing and threatening evils of our time: land monopoly.”
He mentioned railroads several times in his speech, noting their now well-worn argument that “competition is the best regulator of prices.”
“Practically there is no local competition,” Booth said, “and we cannot ignore the tendency toward a general consolidation of all the railroads in the United States — a consummation which, if reached, will create a power greater than any single state, and the rival of the general government.”
The movement to keep railroad companies in check led to the 1887 Interstate Commerce Act, making railroads the first industry subject to federal regulation.
In more recent years, the state attorney general’s office has sued telecommunications giants, auto part makers, healthcare providers, pharmaceutical companies and big oil.
When German-based chemical conglomerate Bayer was cleared by the U.S. Department of Justice to buy Monsanto, California led a coalition of states that opposed the merger.
“California is the breadbasket for America and the world,” former Atty. Gen. Xavier Becerra said in a news release at the time. “With this merger, three companies will control the global food supply. ... When it comes to something as essential as food, no foreign company should have monopolistic power over what Americans eat.”
That merger ultimately went through.
So what should we, the consumers, take away from the Google lawsuit? For Moss, it’s the latest counterpoint to the conservative idea “that ‘free markets’ are totally self-regulating and that no government oversight is needed.”
“If firms are allowed to acquire and exercise market power without any oversight, then markets become noncompetitive and everyone suffers,” she said. “We need antitrust enforcers to call balls and strikes to ensure competition ... that [provides] benefits for consumers, workers and entrepreneurs. “
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