Google's Alleged Scheme to Corner the Online Ad Market
In 2010, a Google product manager named Scott Spencer gave an interview explaining Google’s use of “second-price” auctions to place ads across the web. In a second-price auction, the highest bidder wins, but only has to pay whatever the second highest bid was. Economists love this setup—the guy who theorized it won a Nobel Prize—because it encourages participants to bid whatever the item is truly worth to them without worrying about overpaying. As Spencer explained, “ it minimizes the need to ‘game’ the system.”
That’s the accusation made in an antitrust lawsuit brought by a coalition of states led by Texas attorney general Ken Paxton. On Friday morning, a federal judge released an unredacted version of the most recent complaint in the case, which was first filed in 2020. The document provides unprecedented insight into how Google allegedly misled advertisers and publishers for years by manipulating auctions in its own favor using inside information. As one employee put it in a newly revealed internal document, Google’s public claim about second-price auctions were “untruthful.”
The Texas case, one of several the company is facing, takes aim at Google’s control of the auction-driven display advertising market. Google utterly dominates every link in the chain between advertiser and audience. It owns the biggest buyer platform, the biggest ad exchange, and the biggest publisher platform. So when you see an ad on a website, it’s a good bet that the advertiser used Google to place it, Google’s exchange submitted it to the site, and the site used Google to make the space available. Google, in other words, runs the auction while representing both the buyers and sellers in that auction.
