Insights

Mar 17, 2021

Competition
State Aid
Desperate measures for desperate times? Government intervention during the Coronavirus pandemic (Part I).

Cooperation between Google and the Federal Ministry of Health ("BMG")

Generally, government policy instruments comprise regulation or state aid, aimed at correcting market failures such as restrictions or distortions of competition, other inefficiencies or socially undesirable market outcomes. However, in the wake of the repercussions caused by the Coronavirus pandemic, many governments have adopted unconventional approaches to intervention in their economies. In this short series of articles, we present two examples where the German government has intervened in seemingly well-functioning markets. While in both examples the intervention may be considered appropriate for political or social reasons, from a competition perspective, they do not appear to be reasonable as they pose a significant risk of distorting competition. Clearly the pandemic has had both social and economic consequences and interventions may improve one at the expense of the other. However, if an intervention will likely lead to distortive effects on a competitive market, social welfare must increase sufficiently to outweigh the disadvantages.

The first example concerns a cooperation between the German Federal Ministry of Health (BMG) and Google regarding the preferential display and positioning of the BMG’s content within Google’s German search website. Whenever a user entered a query using a defined set of health-related keywords, Google would display content initially published by the BMG in its national health portal gesund.bund.de prominently in an information box (called the “Health Knowledge Panel”), alongside a link to the health portal. This cooperation was praised by the BMG and Google in press-releases as a boost to citizens’ access to reliable public health information, de facto establishing the national health portal as the port of call for health queries going forward.

Shortly after the cooperation between the BMG and Google was announced, the online health portal NetDoktor filed an injunction against Google and the BMG at the Lower Regional Court of Munich. NetDoktor argued that the agreement between the BMG and Google constituted an anticompetitive agreement between undertakings by both object and effect. NetDoktor alleged that the cooperation crowded out private providers of medical information, thereby restricting competition in the relevant market for online health portals. It further alleged that Google’s discrimination against private health portals, self-preferencing and technical tying of search engine and information provision services constituted a unilateral abuse of market power.

In two rulings of 10th of February 2021, the Lower Regional Court of Munich judged this cooperation between the BMG and Google a violation of competition law (37 O 15720/20), and through a preliminary injunction prohibited the cooperation in its current form. The court reasoned that the operations of the BMG were not merely governmental activities which would fall outside the scope of competition law. Instead, they constitute economic activities, which accordingly must be examined under competition law. Under that assessment, the agreement was deemed a restriction of competition by effect (but not object) in the market for health information portals, in which BMG, NetDoktor and other private health portals were active.

The Court reasoned that, as the prominent positioning of content was exclusively reserved for the BMG and unavailable to private-sector providers, a central marketing tool was withheld from BMG’s competitors (including NetDoktor). The exclusive access to the top search rank would result in a competitive advantage that cannot be otherwise compensated.  Through diverting traffic and hence advertisement revenues, the agreement was to the detriment of BMG’s competitors.

The BMG claimed that its conduct was legitimate as the cooperation contributed to a superior public information service, which in turn increased overall welfare. This claim, and others, for efficiencies such as reduced consumer search costs were put forward to justify exemption pursuant to Article 101(3) TFEU and §2 ACR. However, the efficiency claims were rejected by the court it considered that they would not outweigh the adverse effects on competition.[1]

Commentary

On purely competition economic grounds, the government’s intervention in this example raises serious concerns. There was an adverse effect on competition because participants in the market for online health portals (such as NetDoktor) typically finance their business activities through advertising revenues. The amount of advertising revenue generated depends on the number of website users (i.e., the traffic generated). As most users arrive at health portals through a Google search, health portals are highly dependent on achieving a high rank on Google’s search results page. The high dependency on Google is demonstrated by the fact that more than 80% of NetDoktor’s traffic originated from a Google search.

As noted by the Court, absent the government’s intervention, health platforms would compete for high search rankings through the provision of high-quality content and/or through the purchase of advertisement space. This area of competition was effectively removed once the Health Knowledge Panel was launched. NetDoktor provided data on click rates, showing – after controlling for other potential effects – a significant shift in the frequency of website users towards the BMG page. The Court interpreted this as a strong indication that the shift was only attributable to the introduction of the Health Knowledge Panel and would not have happened otherwise.

However, it is not evident that intervention in the functioning of an already established and previously evidently functioning market appear justified on efficiency grounds, as it appears highly unlikely that the potential positive effects would outweigh the negative effects on competition. For example, the content of many private online health portals is provided by medical experts. Hence, no objective improvement of citizens’ access to reliable health information is to be expected if the BMG's site is visited instead of private alternatives, where both sites provide essentially the same information free of charge. Furthermore, as the Court rightfully noted, boosting the popularity of one market participant to the detriment of others does not lead to an overall improvement of welfare. Finally, had the BMG been concerned that relevant medical information related to the pandemic was insufficiently provided under the free market regime, it could have cooperated with the respective private market participants by providing them with (more) well-founded information, i.e. there existed a less restrictive alternative to achieve the claimed efficiencies.

We would also note that although the agreement between the BMG and Google did not include any monetary compensation, it was also beneficial for Google. The cooperation may make it more attractive for health platforms to pay for a high ranking than previously, where a high ranking could be achieved via quality content. Furthermore, health portals are typically financed through advertising revenues. For example, companies selling health-care related items would typically purchase advertisement space on the NetDoktor webpage to reach their target audience. Once traffic declines to NetDoktor, companies may divert their advertising budgets to other marketing opportunities, e.g. marketing directly on Google.

Against this background, and in light of the current push by the European Commission to regulate more effectively large tech companies to prevent the potential abuse of their dominant positions, the actions of the German government appear questionable. Through its actions, the BMG has assisted to legitimise and reinforce Google's position as gatekeeper[2], and allowed Google to utilise its (arguably already dominant) position to its own advantage and to the detriment of others. Whilst not engaging in so-called “self-preferencing” of an own downstream service to gain a competitive advantage, Google nevertheless appears to have favoured the downstream service of a particular third party with which it had cooperative ties.  Furthermore, the BMG appears to have assisted in a transformation of Google, from a search engine that acts as a platform bringing together users and health platforms, to a co-provider of a health platform. It allows Google to leverage its upstream market power to divert users into a joint service downstream.

This cooperation goes against the objective of the Digital Market Act, i.e. to ban unfair trade practices by gatekeepers in order to create a fair business environment for online providers who depend on gatekeepers in their business activities. From a competition economics perspective, the cooperation between the BMG and Google has worked in the opposite direction: The government has tolerated Google acting in a double role as platform provider and market participant and has also tolerated the preferencing of a particular third party with which Google had cooperative and commercial ties.

Conclusion

The BMG’s stated aim to provide quick and easy access to reliable public healthcare information was well intended given the nature of the pandemic and concerns about fake news hindering the fight against it. Yet, it appears that the government has overlooked the potential adverse effects of its unconventional actions on competition and not considered other avenues by which equivalent healthcare information can be provided to its citizens.

Clearly competitive markets are generally beneficial but social issues also play a part in public policy. Achieving an appropriate balance between efficiency considerations and social objectives is not straightforward. Where a government’s intervention into a functioning market will clearly negatively affect competition (as was the case in this example), the established framework for the assessment of claimed efficiencies is within the ambit of Article 101(3) TFEU and national equivalents. Under this framework, any welfare effects must be quantifiable and sufficient to outweigh the negative effects on the respective market. Furthermore, where an equivalent efficiency can be reached through other means that would not decrease the degree of competition, for example through the provision of healthcare content to private health portals by the BMG, that option should be preferred.

Any opinions expressed in this communication are personal and are not attributable to Competition Economists Group