Parallels Between Interchange Fees and Google

I’ve been thinking the past couple of days about the parallels between price controls on debit card interchange fees and the investigations of Google after reading Eric Schmidt’s comments as reported by Gordon Crovitz in the WSJ:

Mr. Schmidt had just given his first congressional testimony. He was called before the Senate Judiciary Antitrust Subcommittee to answer allegations that Google is a monopolist, a charge the Federal Trade Commission is also investigating.

“So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. OK? I mean, I don’t know how to say it any clearer,” Mr. Schmidt told the Post. “It’s not like we raised prices. We could lower prices from free to . . . lower than free? You see what I’m saying?”

The parallel, of course, is that search engines and payment cards are two paradigm examples of two-sided markets where one side of the market–invariably the more inelastic side–bears the bulk of the cost in maintaining the platform.  And so, until the Durbin Amendment at least, consumers received debit cards for free and merchants (the more inelastic parties) bore the cost of operating the system.  For search engines, consumers get an unlimited number of free searches and clicks–with all those costs paid by advertisers (the inelastic parties).

If I follow the logic of apologists for the Durbin Amendment, what follows next is price controls on Google Ads with the goal of eliminating free search engines, thereby making the cost of search more “transparent” to consumers and eliminating the subsidy from consumers who don’t search on line to those who do.

Of course, this isn’t the nub of the government’s antitrust case against Google.  But the very fact that it is recognized that would be an illogical way of thinking about consumer harm in the case of Google illustrates the fallacy of the reasoning with respect to payment cards.

Hal Singer makes some similar points about the similarities between the FCC’s Open Internet order and payment card price controls at Truth on the Market.