Is free too cheap?

At the beginning of February, Google lost a court case in France where a competitor – Bottin Cartographies – has accused them of anti-competitive pricing.  The story has been reported by Forbes and CNET with some confusion over what exactly has been discussed.

The basis of the case appears to be that Bottin Cartographies has alleged that Google is giving away its maps service for free, which is a move designed to ensure that nobody else can compete and are driven out of the market.  Once Google has no competition, it will be able to raise its price and abuse its market power. 

Ordinarily, this type of anti-competitive move is known as predatory pricing; pricing below a sustainable level in the short-term for a long-term gain. However, it would be difficult to allege that Google is following this path, since there’s no evidence that Google is in fact pricing below cost.  The price to the end user may be free, but in fact costs – once you take all other income into account, particularly advertising fees – may be negative.

Who is Google’s customer, anyway?  Bottin would argue that the user of the maps is the customer, since they are who are charged for using Bottin’s equivalent service.  Google would consider its customers to be advertisers on the website, however.  If this were the case, there are, in effect, two entirely different markets being compared.

France has some precedent in this area.  Back in 2007, Amazon was fined for undercutting book sellers by offering free delivery.  This decision was to protect small, independent booksellers, from being driven out of business.

Google will appeal this latest decision – much as Amazon did back in 2008 – but it is likely to be more successful than that case was.  The argument over free shipping came from a French legal oddity, dating back to 1981, which regulates the price of books, and the French courts eventually forced Amazon to increase shipping prices.  However, since so much of the digital economy works on an advertising-led model, it’s hard to see that this could be allowed to continue since it sets a wider precedent.  It could have ramifications outside of the Internet as well; free-to-air TV stations paid for by adverts, or free newspapers, could be similarly fined.

Predatory pricing can be a serious concern, particularly in regulated industries.  However, care must be taken to not conclude that predatory pricing is taking place simply because different business structures are in use.

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