In 2010, a Google product supervisor named Scott Spencer gave an interview explaining Google’s use of “second-price” auctions to place advertisements throughout the internet. In a second-price public sale, the highest bidder wins, however solely has to pay no matter the second highest bid was. Economists love this setup—the guy who theorized it gained a Nobel Prize—as a result of it encourages members to bid no matter the merchandise is really price to them with out worrying about overpaying. As Spencer defined, “ it minimizes the need to ‘game’ the system.”
But what if Google was the one gaming the system?
That’s the accusation made in an antitrust lawsuit introduced by a coalition of states led by Texas lawyer common Ken Paxton. On Friday morning, a federal decide launched an unredacted model of the most up-to-date grievance in the case, which was first filed in 2020. The doc gives unprecedented perception into how Google allegedly misled advertisers and publishers for years by manipulating auctions in its personal favor utilizing inside info. As one worker put it in a newly revealed inside doc, Google’s public declare about second-price auctions had been “untruthful.”
The Texas case, one in every of several the company is facing, takes intention at Google’s management of the auction-driven show promoting market. Google totally dominates each hyperlink in the chain between advertiser and viewers. It owns the largest purchaser platform, the largest advert alternate, and the largest writer platform. So if you see an advert on an internet site, it’s a very good guess that the advertiser used Google to place it, Google’s alternate submitted it to the web site, and the web site used Google to make the house out there. Google, in different phrases, runs the public sale whereas representing each the consumers and sellers in that public sale.
This presents an obvious conflict of interest. As one worker put it, quoted in a beforehand unsealed model of the lawsuit, “The analogy would be if Goldman or Citibank owned the NYSE.” According to Texas, Google has failed to resist the temptation to use its management of the market to its personal benefit. The lawsuit accuses it of deploying not less than three packages secretly designed to distort the supposed second-price auctions. While the existence of these packages was already public, the newly unredacted grievance gives new element into how they allegedly work.
The first program, launched in 2013, was the unusually named Project Bernanke, as in former Federal Reserve Chair Ben Bernanke. According to Texas’s description of inside Google paperwork, right here’s the way it labored. Suppose the highest bid positioned by means of AdX, Google’s advert alternate, was $10, and the second highest was $8. In that case, the advertiser who bid $10 ought to win the public sale and pay the writer $8. Under Project Bernanke, nevertheless, Google would allegedly as an alternative pay the writer no matter the third-highest bid was—let’s say $5—whereas nonetheless charging the advertiser the full $8.
What occurred to the $three distinction? According to the grievance, Google would siphon it right into a “Bernanke pool” that it used to benefit its personal ad-buying software, Google Ads. The submitting quotes an inside 2014 doc during which a Google worker describes the want to reverse “a worrisome 2013 trend”: rival ad-buying platforms had been successful too many auctions on AdX. According to the grievance, Google used the cash in the pool to increase bids that in any other case could be decrease than bids positioned by means of these different platforms. (This might clarify why the program is known as after Bernanke, who promoted “quantitative easing”—pumping cash into the economic system—to fight the Great Recession. An inside Google slide makes use of the phrase quantitative easing.) At first, Google stored observe of how a lot cash it was withholding from publishers and ultimately paying them again. But, in accordance to the grievance, later variations of the program stopped even doing that.