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Google’s alleged plan to hunt down the online advertising market




In 2010, a Google Product Manager named Scott Spencer interviewed and explained that Google is using a second-price auction to place ads across the web. In the second price auction, the highest bidder wins, but you have to pay whatever the second highest bid is. Economists love this setup. It’s the man who theorized that he won the Nobel Prize to encourage participants to bid on really valuable items without worrying about overpayment. As Spencer explained, it minimizes the need to game the system.

But what if Google is playing a system game?

It is an accusation filed in an antitrust proceeding filed by a state coalition led by Texas Attorney General Ken Paxton. On Friday morning, a federal judge released an unedited version of the latest complaint in the case, first filed in 2020. This document provides inside information on how Google allegedly misleads advertisers and publishers over the years. Google’s public claim about the second price auction wasn’t true, as an employee put it in a newly published internal document.

The Texas lawsuit, one of the few cases the company is facing, aims to help Google dominate the auction-driven display advertising market. Google has complete control over all links in the chain between the advertiser and the audience. We own the largest buyer platform, the largest advertising exchange, and the largest publisher platform. Therefore, when an ad appears on a website, the advertiser used Google to place the ad, Google Exchange sent the ad to the site, and the site used Google to make space available. There is no doubt. That is, Google runs the auction on behalf of both the buyer and seller of the auction.

This shows a clear conflict of interest. As cited in a previously unsealed version of the proceedings, as one employee said, the analogy is when Goldman or Citibank owns the New York Stock Exchange. According to Texas, Google couldn’t resist the temptation to take advantage of market power for its own benefit. The proceedings accuse it of deploying at least three programs secretly designed to distort the expected second-price auction. The existence of these programs has already been published, but the newly unedited complaints provide new details on how they work.

The first program launched in 2013 was a strangely named project Bernanke, like Ben Bernanke of the former Federal Reserve Board. The Texas internal Google Docs describes how this worked. Suppose the highest bid made through AdX and Google’s ad exchange was $ 10 and the second highest bid was $ 8. In that case, the advertiser who bids for $ 10 will have to win the auction and pay the publisher $ 8. However, under project Bernanke, Google is said to instead charge the advertiser $ 8, while paying the publisher even though the third highest bid is $ 5.

What happened to the $ 3 difference? According to the complaint, Google sucked it up to Bernan Kipur, which was using it to take advantage of its own ad-buying tool, Google Ads. Filing cites a 2014 internal document explaining the need to reverse the 2013 trend that Google employees are concerned about. A rival ad buying platform has won too many auctions with AdX. According to complaints, Google used the money in the pool to boost lower bids than bids made through other platforms. (This may explain why the program was named after Bernanke, who promoted quantitative easing. It sends money to the economy to fight the Great Recession. An internal Google slide shows quantitative easing. Uses the phrase.) Repay them with the publisher in the end. However, according to complaints, newer versions of the program have even stopped doing that.




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