Google-ITA Software deal: Support, criticism at hearing

While the U.S. Dept of Justice continues to review the Google-ITA Software deal, a backer and a detractor aired their views at a House Judiciary Committee hearing yesterday.

Geoffrey Manne, executive director of the International Center for Law & Economics, endorsed the deal [pdf], arguing that if the DOJ steps in to block it, then “… Google, its shareholders, its many users and its customers (to say nothing of ITA and its investors) would be harmed — as would technological progress and economic growth.”

Manne characterized Google’s pending acquisition of ITA Software as “a straightforward vertical merger” and that such combinations are a well-justified means to avoid the difficulties of merely establishing contracts between two companies.

“Most notably Google gets to exercise direct control over ITA’s talented engineers if it owns ITA — influence that it may otherwise be able to wield only tangentially, if at all, through contracts with ITA,” Manne said. “If Google thinks either that it can better manage ITA’s human (and possibly also intellectual) capital better than ITA’s current management, and/or if it has the foresight, financial wherewithal, intellectual and human capital, or innovative spark to better make use of ITA’s resources, then integration is both sensible for the companies and valuable for consumers.”

The testimony took place before the Subcommittee on the Courts and Competition Policy as it took up “Competition in the Evolving Digital Marketplace” during a hearing on Capitol Hill. Google-ITA was just one of numerous subjects addressed.

In his prepared remarks, Manne noted that despite critics’ claims, Google would not be able to block other companies’ access to airline data because ITA just processes airline data, which airlines actually own.

“Google wants to build its business in a growing market that offers economies of scope with its existing business …” Manne said.

“If instead it is meant to refer to some sort of anticompetitive tying or market foreclosure, the claim [that Google seeks to merely transfer its search dominance into another market] is speculative and unsupported, as best I can tell,” Manne said.

Arguing that the DOJ should not intervene, Manne adds: “Whatever Google tries to do at this early stage of market evolution, it will face challenges from competing business models not yet conceived of, changes in underlying software and demographic/usage/consumer preference changes that will make any market power it might enjoy fleeting and important in catalyzing the very competitive evolution that will undermine it.”

Not everyone was ready to be a cheerleader for the deal.

Morgan Reed, executive director of the Association for Competitive Technology, argued that software developers might be precluded from gaining easy access to airline flight information if the acquisition goes through.

“The concern is about access to the engine and who gets the best quality result,” Reed said.

Among ACT’s sponsor members is Microsoft, which owns Bing Travel.

Bing Travel competes with Google and Orbitz may have an interest in being less than enthusiastic about the deal because it uses ITA’s QPX system for flight shopping and pricing.

ACT says it represents 3,000 small and midsize tech firms.