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Antitrust Regulation of Big Tech Needs a Better Understanding of Behavioral Economics

 |  January 5, 2024

By: Omar Vásquez Duque (Pro Market)

The rise of behavioral economics has resulted in its extensive application across business and government sectors. In consumer finance, it shapes strategies to improve financial decision-making, while in food law, it contributes to the development of more user-friendly food labels. Although the integration of behavioral economics into antitrust law has been a gradual process, it now stands at the forefront of competition policy. This is particularly evident in critical interventions addressing the complex challenges posed by Big Tech and the evolving digital economy.

A prominent case illustrating this intersection is the recently concluded Google trial, examining its agreements with various search engine distributors, including Apple, to establish Google Search as the default search engine. A crucial theory in this trial posits that default agreements constitute de facto exclusive dealing due to the infrequency of users changing their devices’ default settings (Google holds approximately 90% of the market share for online search in the United States). The de facto exclusive dealing theory, alongside related “tying” theories, advocates for regulators to compel users to actively choose their default applications, fostering a more competitive landscape. European regulators have embraced this approach, exemplified by the implementation of choice screens—pop-up windows prompting users to select from a set of alternatives—in pivotal cases involving Microsoft and Android.

However, an underlying paradox complicates these theories and their policy applications. A core principle of behavioral economics—and social science in general—is the observation of real-world conduct to assess the validity of hypotheses and formal models. A critical examination of current interventions reveals their reliance on untested assumptions and somewhat naive theories. They presuppose that inertia holds greater psychological relevance than user satisfaction and that simply providing users with a choice will meaningfully alter entrenched market dynamics. While regulators’ arguments regarding the anticompetitive impact of default settings may not be as robust as asserted, Google’s conduct still diminishes competition in a manner that violates antitrust law. This nuanced interplay underscores the complexity of addressing antitrust challenges in the evolving digital economy.