Quick Quiz What kind of agreement is illegal for businesses to make? Why are the antitrust laws controversial? 17-4 Conclusion Oligopolies would like to act like monopolies, but self-interest drives them toward competition. Where oligopolies end up on this spectrum depends on the number of firms in the oligopoly and
how cooperative the firms are. The story of the prisoners' dilemma shows why oligopolies can fail to maintain cooperation, even when cooperation is in their best interest. Policymakers regulate the behavior of oligopolists through the antitrust laws. The proper scope of these laws is the subject of ongoing controversy. Although price fixing among competing firms clearly reduces economic welfare and should be illegal, some business practices that appear to reduce competition may have legitimate if subtle purposes. As a result, policymakers need to be careful when they use the substantial powers of the antitrust laws to place limits on firm behavior. Google Says It's Actually Quite Small By Jeff Horwitz Three times in the past month, government agencies have targeted Google for antitrust reviews. An outstanding private lawsuit alleges that Google tried to kill a business-to-business search engine with predatory pricing. And during the waning months of the Bush administration, soon- to-be Obama antitrust chief Christine Varney declared that Google “has acquired a monopoly in Internet online advertising.” Last month she asserted that the Bush administration had been too lax in combating monopolistic behavior and that the Obama Justice Department would no longer “stand on the sidelines.” That should explain why Dana Wagner, a former Department of Justice antitrust lawyer hired by Google just last year, is rapidly becoming one of the company's public faces. Along with Adam Kovacevich, a company public-policy spokesman, Wagner has been talking to advertising clients, public officials, reporters and academics in an effort to diffuse the impression that Google has a competition law problem. As might be expected, Google's presentation highlights the company's many good works and “don't be evil” corporate philosophy. But there's another element at front and center of the presentation: According to Warner and Kovacevich, their company holds only a 2.66 percent share of its total market. If that number seems low for the runaway success story of the Internet age, Google wants you to believe that it's just a question of market definition. Google rejects the idea that it's in the search advertising business, an industry in which it holds more than a 70 percent share of revenue. Instead, the company says that its competition is all advertising, a category broad enough to include newspaper, radio and highway billboards. Google's argument is not simply that it's not a big bully. If you believe the company, it's not even that big….