In a recent antitrust trial, the Department of Justice (DOJ) argued that Google’s actions in manipulating ad auctions and inflating costs have had a negative impact on search advertisers. The DOJ presented a closing deck of slides to support their argument, highlighting Google’s monopoly power and the harm caused to advertisers.
The DOJ defined Google’s monopoly power as the ability to control prices and exclude competition. They presented evidence that Google does not consider rivals’ ad prices, which is a characteristic of monopolists. Testimony and internal documents from Google employees were used to show that the company raised ad prices to increase revenue.
Dr. Adam Juda, a Google employee, mentioned that the company aimed to come up with “better prices or more fair prices,” which often resulted in higher prices than before. Dr. Hal Varian also acknowledged that Google had various levers to change the ad auction design to achieve desired outcomes. This was confirmed by Juda and Jerry Dischler, another Google employee, who discussed the impact of increasing prices from 5% to 15% in two slides.
One of the key arguments made by the DOJ was that Google has the power to raise prices at its discretion. Google referred to this as “tuning” in internal documents, while the DOJ labeled it as “manipulating.” The DOJ identified three specific actions by Google that harm advertisers: format pricing, squashing, and RGSP.
Format pricing refers to the claim made by Google that advertisers never pay more than their maximum bid. However, the DOJ revealed the existence of “Project Momiji,” which artificially inflated the bid made by the runner-up, resulting in a 15% increase for the winning advertiser and more ad revenue for Google.
Squashing involves increasing an advertiser’s lifetime value based on their predicted click-through rate (pCTR) relative to the highest pCTR. This practice, as described in a 2017 document introducing a new product called “Kumamon,” effectively raised the price against the highest bidder. Google’s goal was to create a more broad price increase, leading to the Google ad auction winner paying more than they should have. The DOJ argued that this resulted in a negative user experience as ads were ranked sub-optimally in exchange for more revenue.
RGSP, or Randomized Generalized Second-Price, was introduced by Google in 2019. It allowed Google to raise prices in small increments over time, incentivizing advertisers to bid higher. However, according to 2019 Google emails, this did not lead to better quality. The result was a 10% increase in revenue for Google.
The lack of query visibility was another concern raised by the DOJ. Google makes it difficult for search marketers to identify poor-matching queries using negative keywords, which harms advertisers.
Overall, the DOJ presented a compelling case against Google, arguing that their actions in manipulating ad auctions and inflating costs have had a negative impact on search advertisers. The evidence provided in the closing deck of slides highlighted Google’s monopoly power and the harm caused to advertisers through practices such as format pricing, squashing, and RGSP. The trial will have significant implications for the future of search advertising and Google’s dominance in the industry.
