Google’s damage to search advertisers in 20 slides

Google manipulates ad auctions, Increasing costs to increase profitsthe Justice Department said last week, hurting advertisers. US vs. Google antitrust case.

Below is a summary and several slides of the Department of Justice’s closing materials specific to search advertising that support the Department’s claims.

Google’s monopoly power

This is defined by the Department of Justice as “the power to control prices or eliminate competition.” Monopolists don’t have to consider rivals’ advertising prices, but Google doesn’t, testimonies and internal documents show.

To make this case, the Justice Department presented quotes from various Google employees discussing raising advertising rates to increase the company’s revenue.

• Dr. Adam Judah said Google tried to come up with “a better price, or a fairer price, where the new price would be higher than the old price.”

• Dr. Hal Varian pointed out that Google has many tools available to change the design of its ad auctions to achieve desired results.

• Judas and Jerry Dischler confirmed this. Dischler is quoted as saying in two slides that he explains the impact of raising prices from 5% to 15%.

Other slides of materials used by the Department of Justice in its argument:

• CPC for Google Search Ads more than doubled between 2013 and 2020.

Damage to advertisers

According to the Justice Department, Google has the authority to raise prices if it wishes. Google calls this “tuning” in internal documents. The Justice Department called this a “manipulation.”

According to the Department of Justice, three things harm advertisers: format pricing, squashing, and RGSP.

Format pricing

• According to Google, “advertisers will never pay more than their highest bid.”
• Yes, but: What Google didn’t mention was Project Momoji, which quietly launched in 2017.
• What is Momiji: The bid amount of the runner-up company was artificially inflated.
• result: 15% increase for “winning” advertisers. Google’s advertising revenue will increase.
• related slide: From documents from the Department of Justice:

crush

• structure: Google has increased lifetime value for advertisers based on how far their predicted click-through rate (pCTR) is from their best pCTR. According to his 2017 document introducing a new product called “Kumamon,” Google created a “simple system consisting of a bid, three quality signals, and a few (mostly) hand-tuned parameters.” This was done using a “algorithm”. (Screenshots in this document seemed to indicate that Kumamon would be adding more machine learning signals to the auction.)
• In other words: Google has raised the price “to the highest bidder.”
• Our goal: To achieve “broader price increases.”
• result: The winner of the Google Ads auction will have paid more than they would have had to pay if squashing had not been included in the ad auction.
• and: The Justice Department noted that all of this led to a “negative user experience” as Google ranked ads suboptimally “in exchange for more revenue.”
• Related slides: From documents from the Department of Justice:

RGSP

• what is that: Randomized generalized second prices were introduced in 2019. (You go even deeper. What is RGSP? Google’s randomized generalized second-price ad auction explained)
• structure: Google calls this “the ability to gradually increase prices over time (shifting the curve up, or making the ceiling steeper) (also known as ‘inflation’).” According to a 2019 email from Google, it didn’t lead to quality improvements.
• how Google talked about it like this: “Better pricing than format pricing.”
• result: Encouraged advertisers to bid higher. Google increased revenue by his 10%.
• Related slides: From Department of Justice documents:

Search query report

The lack of query visibility also negatively impacts advertisers, according to the Department of Justice. Google makes it nearly impossible for search marketers to use negative keywords to “identify low-match queries.”

Department of Justice presentation. View all 143 slides from DOJ. Closing Materials: Search Advertising: United States and Plaintiff States v. Google LLC (PDF)

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