Google’s Claimed Antitrust Violations in Search Advertising: A Comprehensive Analysis

Google’s Alleged Monopoly Power

The US Department of Justice (DOJ) alleges that Google holds a monopoly in the search advertising market, granting it the power to dictate prices and stifle competition. Google disputes these claims, maintaining that it faces significant competition from other search engines and advertising platforms.

However, evidence suggests otherwise. Internal Google documents and testimony reveal that the company does not consider the prices of rival ad platforms when setting its own prices. This indicates that Google has little regard for competition and can effectively set prices at will.

Furthermore, Google executives have openly discussed raising ad prices to boost revenue. For instance, Dr. Adam Juda proposed “better or fairer prices, where those new prices are higher than the previous ones.” Dr. Hal Varian acknowledged that Google possesses “levers” to manipulate the ad auction design to achieve desired outcomes.

Advertiser Harm: Three Nefarious Practices

The DOJ argues that Google’s monopoly power allows it to raise prices at whim, harming advertisers. This practice, euphemistically termed “tuning” by Google but denounced as “manipulation” by advertisers, takes three primary forms:

Format Pricing: Inflating Costs Through Artificial Competition

Advertisers typically bid on the maximum amount they are willing to pay per click. However, Google’s “format pricing” ensures that advertisers never pay more than this maximum bid. This would seem fair on the surface, but Google’s “Project Momiji” (2017) scheme artificially inflated the bid of the runner-up advertiser, effectively increasing the cost for the winning advertiser.

Squashing: Raising Prices Against the Highest Bidders

Google calculates an advertiser’s lifetime value based on their predicted click-through rate (pCTR). Paradoxically, Google often raises prices against the highest bidder to create a broader price increase. This leads to a negative user experience, as Google ranks ads sub-optimally to maximize revenue rather than provide the best results for users.

RGSP: Gradual Price Inflation Over Time

Introduced in 2019, Google’s Randomized Generalized Second-Price (RGSP) auction design allowed the company to gradually increase prices over time. This subtle but insidious change incentivized advertisers to bid higher, increasing Google’s revenue by an estimated 10%.

These practices have not only harmed advertisers but also weakened competition. Small businesses and startups struggle to compete with larger advertisers who can afford to pay higher prices. This stifles innovation and reduces consumer choice.

Google’s Alleged Antitrust Violations in Search Advertising

Google’s Monopoly Power

The Department of Justice (DOJ) defines Google’s monopoly power as the ability to control prices or exclude competition. Internal documents and testimony reveal that Google does not consider rivals’ ad prices, giving it the power to raise prices at will. Discussions among Google executives about increasing ad prices to boost revenue underscore this monopoly power.

Advertiser Harm

The DOJ alleges that Google’s monopoly power has harmed advertisers. Three specific practices are implicated:

* Format pricing: Google’s system ensures that advertisers never pay more than their maximum bid. However, “Project Momiji” artificially inflated the bid of the runner-up, increasing costs for the winning advertiser.
* Squashing: Google increased an advertiser’s lifetime value based on predicted click-through rate (pCTR). It then raised prices against the highest bidder to create a broader price increase, leading to sub-optimal ad rankings and a negative user experience.
* RGSP (Randomized Generalized Second-Price): Introduced in 2019, RGSP allowed Google to gradually increase prices over time, incentivizing advertisers to bid higher and increasing Google’s revenue by 10%.

Lack of Query Visibility

The DOJ argues that Google’s lack of query visibility harms advertisers. Google makes it difficult for search marketers to identify poorly matching queries using negative keywords, leading to over-optimization and wasted ad spend.

Conclusion

The DOJ’s allegations paint a portrait of a company that has abused its monopoly power in search advertising. Google’s practices have harmed advertisers and stifled competition. It remains to be seen whether the DOJ’s lawsuit will succeed in curbing Google’s alleged anti-competitive behavior. However, the allegations serve as a reminder of the importance of antitrust enforcement in protecting consumers and fostering fair markets.