Google’s Choice Architecture – between Market Power and Benefits

Alexander Stolte, a doctoral student at the Center for Digital Transformation at the TUM Campus Heilbronn, has investigated how the structure of platforms affects users and what options there are for regulating the market.

His fascination with digital platforms developed over the course of his academic career: “After completing my Bachelor’s degree in Economics at the University of Hamburg and my Master’s degree in Economics at Ludwig-Maximilians-Universität in Munich, I wanted to conduct research with a practical focus and visualize digital innovations and their social impact.”

Professor Jens Förderer offered him this opportunity at the TUM Campus Heilbronn. Supply and demand matched: “The research field of digital platforms affects a lot of people.” The campus in Heilbronn also offers many location advantages: “The processes are organized very leanly, the official channels are short. The facilities and infrastructure are also top-notch. These are all benefits of the growing campus.”   

Unlimited power?

One of the most important digital platforms is Google. One advantage is its seemingly limitless power – hardly any other company has so much information about the accessible parts of the World Wide Web. As a market operator, the software giant channels the providers of websites through rankings. How does the company earn money from this? “Some of the search results are sponsored. Google only earns money when these links are clicked on,” explains Stolte.

With a sophisticated choice architecture, the company tries to offer users the most personalized search results possible. One interesting question is how many search results should be displayed. Stolte is therefore working on so-called infinite scrolling, in which the search results are dynamically reloaded. This is useful for very specific searches where the user already knows what they are looking for.

So-called ‘Snippets’ answer users‘ questions directly; they are a preview of website content. The advantage for Google: “The added value remains with the platform and no longer with the downstream websites. Search costs are reduced enormously and the user has the advantage of not having to click any further.” At the same time, Google has introduced infinite scrolling: There is no maximum number of search results on one page.

Microsoft is still around

So are we dealing with a de facto monopoly? “Google’s market power surprises me. The individual website operator is very dependent on the platform and has little room for creative freedom because Google naturally also sets technical standards,” explains the young doctoral student. However, with Microsoft and its digital platform Bing, a second powerful and above all financially strong player is getting involved.

In addition, the numerous antitrust proceedings against Google jeopardize the company as such, as the end result could be the break-up or spin-off of business units. At the same time, the next big innovation could shake up the search engine market at any time. There are also many niches in which smaller providers often offer better customized search engines. “Respectable competitors can emerge here,” the scientist is certain.

New competitors on the horizon

Not forgetting the newly developed Large Language Models (LLMs) such as ChatGPT. These systems provide even more customized and targeted answers. However, Stolte expressed concerns: “You realize that LLMs lack precision in terms of content and understanding of terms.” Google, on the other hand, indexes the internet and stores the information on its own servers. “There is always the source, which is Google’s privilege or luxury. There is also a link to every search result.”

However, the choice architecture can be deliberately misused by the platform to incorporate so-called ‘dark patterns’. These give the platform the opportunity to manipulate the user unnoticed to subscribe more often or make unfavorable purchasing decisions. In the case of search engines, the click is then more often on advertising that is presented well and skillfully, but does not deliver the actual benefit. This is often incomprehensible because too little information is available about the market participants.

Lack of transparency

One huge problem in the area of digital platforms: “There is no transparency. A major technical challenge is to find out what information causes the algorithms to make a decision. The how and why is secondary to the business interests of a platform,” explains Stolte. The development of Google’s algorithms is also the result of investments totaling billions, so these business secrets must also be protected.

The agreements between regulators and providers are therefore largely based on trust: “There are actually no control mechanisms. The number of search queries per day and the size of a search engine index do not allow for monitoring or tracking in the traditional sense. Nobody has the resources for this.”

State intervention

The European Union’s Digital Markets Act nevertheless attempts to limit the power of gatekeepers from the state. A successful measure? “Definitely. The large platforms are being subjected to supervision and regulation for the first time.” The ban on ‘self-preferencing’, which obliges Google not to priorities its own services over third-party providers or other websites in search results, is a particularly strong cut.

One of Alexander Stolte’s next research goals could be to define where the ecosystem of a platform begins and where it ends. “With providers like Apple, you can draw this line very easy and product-related, whereas Google is like an octopus on the internet that hides and you can’t escape because we users give Google power over our search behavior.” It remains exciting.