How Supermarket Shelf Space Explains the Upcoming DOJ v. Google Antitrust Case
Google’s search default deals are a lot like Oreos’ grocery store promotional deals
Starting on September 12, a federal courtroom in DC will host what analyst Matt Stoller called the “first big antitrust trial of the century”: the DOJ’s “monopoly maintenance” case against Google’s search distribution agreements.
If you want to understand this case, it’s useful to think about the cookie shelves at your local supermarket.
But first, some quick background on the DOJ’s case.
DOJ v. Google
The lawsuit was launched by AG Bill Barr in the waning days of the Trump Administration — against the recommendations of DOJ career attorneys — and was promoted by now-Assistant AG Jonathan Kanter while he was working for Microsoft in private practice (Bing would be the biggest beneficiary of a DOJ win).
The suit alleges that Google has maintained a monopoly position in search and search advertising through “exclusionary” default search agreements with web browsers, phone manufacturers, telecom operators, and other access points — and that these deals made it difficult for rival search engines to compete for consumers’ attention.
For example, a new user of Safari finds Google selected as the initial default search engine; that’s the result of Apple striking a commercial deal with Google. Of course, consumers can change their default search engine in Safari’s settings, navigate directly to alternative search engines, or use a browser extension (like DuckDuckGo’s).
In a recent pre-trial ruling, Judge Amit Mehta acknowledged that Google’s browser agreements themselves aren’t exclusive on their face, and don’t stop consumers from switching to a new default search engine. The harder question at issue in the case is whether Google has what he calls “de facto” exclusivity, due to these deals giving its search engine what DOJ considers “unbeatable” scale:
Stoller summarized DOJ’s argument as, “Google has bought up all of the shelf space where search is placed in front of consumers, which is to say browsers and phones.”
Stoller is correct that supermarket shelf space is a good analogy — but just as supermarkets’ shelf space deals have never posed a credible antitrust problem, neither do Google’s search distribution deals.
Or, as Financial Times’ Richard Waters put it:
Google argues that paying to make its search engine the default that users see on their devices is no different from the way makers of breakfast cereals pay for prominent placement on supermarket shelves. It also warns that if its own promotional deals are cut off and the courts prevent a normal business practice, then it could lead to a worse experience for consumers, including higher phone prices.
Supermarket “Slotting Fees”: A Form of Marketing
For decades, many supermarkets have charged food manufacturers “slotting fees” to secure shelf space or key in-store promotional locations. These were originally a response by stores to a glut of new products being introduced. Vox has a good explainer here:
For example, if you walk down the cookie aisle of your local supermarket you’ll likely see that Oreo products take up a large amount of space. That’s likely because Mondelez, Oreo’s parent company, pays significant slotting fees to grocers.
The Federal Trade Commission conducted a big study (below) of grocery slotting fees twenty years ago, and its survey of both retailers and food manufacturers found that slotting fees were not just an efficient way of allocating shelf space — they were also an ordinary marketing cost for new food products. Just as a new direct-to-consumer clothing startup might invest heavily in Instagram ads as part of its go-to-market strategy, new food products build slotting fees into their marketing budgets.
Importantly, grocery stores — not food manufacturers themselves — initiate these deals because they help them balance stores’ books. For example, Vox reported that slotting fees comprised upwards of $130 million of Safeway’s annual revenue.
As Brian Albrecht noted:
In the case of retail trade promotions, a promotional space given to Coca-Cola makes it marginally easier for consumers to pick Coke, and therefore some consumers will switch from Pepsi to Coke. But it does not reduce any consumer’s choice. The store will still have both items.
Google’s Search Deals are Like Supermarket Slotting Fees
Google’s search distribution deals are a lot like these supermarket slotting deals — with browsers, smartphones, and telco “access points” acting like the supermarket, and Google and other search engines acting like the food manufacturers competing for shelf space. Here’s a comparison of how these deals are structured:
Despite these benefits, not all retailers use slotting fees. Walmart — which is much bigger than most regional grocery chains — uses its buying power to negotiate volume discounts instead. Whole Foods doesn’t use slotting fees, likely because it provides a more curated product lineup at higher prices. Grocers can choose to offer these slotting fees — or not.
It’s worth adding that other search engines besides Google are paying for placement in browsers. For example, Safari lets users choose to switch to Yahoo, Bing, DuckDuckGo, and Ecosia:
This list isn’t an accident. A UK government report affirmed that these search engines also pay Apple (through search advertising revenue shares) to appear as secondary options on Apple devices:
Of course, Google pays more to secure the default position — but the fact that other search engines also pay to be an option affirms how similar these deals are to grocery slotting deals.
Competitors’ Complaints About Both Slotting Fees & Search Default Deals
A few years ago, Oreo rival Hydrox complained to the FTC that its cookies were getting crowded out of supermarket shelves.
But the reality was that Hydrox was hobbled by poor marketing, underinvestments in slotting fees, and an inferior delivery model. If the FTC had intervened for Hydrox, it would have to police universal shelf access for all competing cookies. Not surprisingly, there is no record of the FTC acting on Hydrox’s complaints.
Similarly, Google’s rival search engines have spent years complaining that Google’s search default deals deny them the scale to succeed.
The Verge recently profiled the failed search engine Neeva, whose leaders are expected to testify at the upcoming DOJ v. Google trial that Google’s search deals denied Neeva much-needed scale. But Neeva likely failed because it cost $4.95 a month, and wasn’t sufficiently differentiated from Google to tempt consumers to try it — a contrast with say, ChatGPT.
It’s understandable why both Hydrox and Neeva would complain about these deals — but that doesn’t mean regulators ought to intervene to require a “must-carry” scheme for cookies or search engines.
Remedies Show that Quality Preferences & Marketing Can’t Be Disentangled
Much like slotting fees, one challenge bedeviling DOJ’s case against Google is the thorny question of how much “default” deals really matter, given consumer preferences.
For example, Vox proposed that a better alternative to grocery slotting fees might be “test stores,” where grocers could test consumer preferences in an “organic” environment free of slotting fees or shelf-space allotment, to determine “true” consumer preferences.
But what counts for “true” consumer preferences? Of course consumers’ preferences have already been shaped by decades of experience.
Similarly, Google critic Stoller proposes a remedy of a “choice screen,” where browsers and smartphone operators couldn’t strike commercial search engine default deals, and instead offer users a choice of several search engines when they first start up the device.
The complication with these ideas? They’ve already failed to achieve their proponents’ goals of altering market shares.
Consumers in a “choice screen” scenario are likely to choose Google in very high numbers, given consumer satisfaction with Google, high brand awareness and habit. We know this because the European Commission required Microsoft to display a similar “ballot screen” for web browser, but consumer preferences remained the same:
Opera and Mozilla had been the two most vocal critics of IE’s unfair advantage in the EU…[but ] there is little evidence that the choice screen changed the browser landscape. Opera, for instance, lost 27% of its global usage share as measured by Irish metrics firm StatCounter between December 2009 and November 2014. Meanwhile, Mozilla’s Firefox shed 42% of its share during the same period.
Google critics won’t be satisfied unless Google’s market share in search decreases. But what if market shares genuinely reflect consumer preferences?
In fact, both a “test store” for food products and “choice screen” for search engines would probably only solidify the lead of popular products and only hurt the bottom lines of the distributors.
In other words, regulators or courts banning search default deals or slotting fees would likely only reaffirm the market-leading position of both Google and Oreos — but result in decreased revenue for the access points, Mozilla and Kroger. Or as Thom Lambert put it:
“The government’s success in its challenge to Google’s Apple payments would benefit Google at the expense of consumers: Google would almost certainly remain the default search engine on Apple products, as it is most preferred by consumers and no rival could pay to dislodge it; Google would not have to pay a penny to retain its default status; and Apple would lose revenues that it likely passes along to consumers in the form of lower prices.”
Despite that, the importance of defaults is going to be a major argument at the DOJ v. Google trial. Instead of “what came first, the chicken or the egg?,” the question will be “what drives search engine market shares, the default deals or the results quality?” — also known as “competition on the merits.”
Scale arguments
Though Google’s deals are similar to grocery slotting fees, the DOJ’s case adds an argument that doesn’t apply to food: the idea that search engines (unlike food) get better as more people use them.
DOJ is likely to argue, as Lambert previewed, that Google’s deals give it higher search volume, which creates a “data barrier to entry” for Bing and DuckDuckGo — they don’t have enough scale to compete. As Lambert notes:
“In the government’s view, Google is legally obligated to forego opportunities to make its own product better so as to give its rivals a chance to improve their own offerings.”
But, he continues:
“This is inconsistent with U.S. antitrust law. Just as firms are not required to hold their prices high to create a price umbrella for their less efficient rivals, they need not refrain from efforts to improve the quality of their own offerings so as to give their rivals a foothold.”
Conclusion
“You can check out any time you like. But you can never leave”
— Hotel California, The Eagles
DOJ will likely argue in court that even though Google’s search deals don’t technically lock in consumers, in practice they create a kind of “de facto” exclusivity that makes Google search like Hotel California — a place they can (technically) check out of, but (in practice) they never leave.
But Google’s search deals make this situation more like grocery stores shelf space deals, not like Hotel California.
As Brian Albrecht put it:
Despite all the bells and whistles of the Google case…from an economic point of view, the contracts that Google signed are just trade promotions. No more, no less. And trade promotions are well-established as part of a competitive process that ultimately helps consumers.
Yes, Google pays browsers and phone manufacturers for default deals — just as Mondelez pays for Oreo’s prime position on supermarket shelves. But that isn’t stopping customers from choosing Bing or DuckDuckGo — not to mention choosing Hydrox or Chips Ahoy.
A government mandate that browsers and phonemakers can’t auction off their default search slots would only hurt those companies, just like a slotting fee ban would only hurt grocers. And consumers might have to work harder to find their favorite products.
Chamber of Progress (progresschamber.org) is a center-left tech industry association promoting technology’s progressive future. We work to ensure that all Americans benefit from technological leaps, and that the tech industry operates responsibly and fairly.
Our work is supported by our corporate partners, but our partners do not sit on our board of directors and do not have a vote on or veto over our positions. We do not speak for individual partner companies and remain true to our stated principles even when our partners disagree.
