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In 2010 a Google’s product manager, Scott Spencer, gave an interview explaining Google’s use of “second-rate” auctions to place ads online. In a second price auction, the highest bidder wins, but only has to pay anything second the highest bid was. Economists love this setting – the man who theorizes that he has won a Nobel Prize – because he encourages participants to bid on what the item really costs them, without worrying about paying more. As Spencer explained, “it minimizes the need for system play.”
But what if Google was the one playing the system?
This is the accusation made in an antitrust lawsuit filed by a coalition of states led by Texas Attorney General Ken Paxton. On Friday morning, a federal judge released an unedited version of the latest lawsuit in the case, which was first filed in 2020. The document provides an unprecedented picture of how Google has allegedly misled advertisers and publishers for years by manipulating auctions in its favor, using inside information. As one employee said in a newly released internal document, Google’s public statement about second-hand auctions is “false.”
The Texas case, one of several facing the company, aims at Google’s control over the auction-driven display advertising market. Google completely dominates every link in the chain between advertiser and audience. It has the largest platform for buyers, the largest advertising exchange and the largest platform for publishers. So when you see an ad on a website, it’s good that the advertiser used Google to place it, the Google Exchange sent it to the site, and the site used Google to provide the space. In other words, Google conducts the auction, representing both buyers and sellers in that auction.
This is an obvious conflict of interest. As one employee was quoted as saying in a previously published version of the case, “The analogy would be if Goldman or Citibank owned the NYSE.” According to Texas, Google could not resist the temptation to use its control of the market to its own advantage. The case accuses him of implementing at least three programs secretly designed to distort alleged second-hand auctions. Although the existence of these programs has already been made public, the recently unedited complaint provides new details on how they allegedly work.
The first program launched in 2013 was the strange name Project Bernanke, as in the case of former Federal Reserve Chairman Ben Bernanke. According to Texas’ description of Google’s internal documents, here’s how it works. Suppose the highest bid placed through AdX, Google’s advertising exchange, is $ 10, and the second highest is $ 8. In this case, the advertiser who offered $ 10 must win the auction and pay the publisher $ 8. According to the project, however, Bernanke claims that Google will pay the publisher for anything instead third-the highest bid was – say $ 5 – while the advertiser was still charging the full $ 8.
What happened to the $ 3 difference? According to the complaint, Google will drain it into the “Bernanke pool”, which it uses to take advantage of its own tool for buying ads, Google Ads. The document cites an internal document from 2014 in which a Google employee described the need to reverse the “alarming trend of 2013”: competing ad buying platforms won too many AdX auctions. According to the complaint, Google is using the money in the pool to increase bids that would otherwise be lower than bids made through these other platforms. (This may explain why the program is named after Bernanke, who promotes “quantitative easing” – pumping money into the economy – to fight the Great Recession. Google’s internal slide uses the term quantitative easing.) Initially, Google tracked how much money was tracked. he withheld from the publishers and eventually returned them. But according to the complaint, later versions of the program even stopped doing so.
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