DOJ Slams Google for Search Ad Price Manipulation

The Department of Justice (DOJ) presented several pieces of evidence to show Google manipulated ad auctions:

• Quotes from Googlers: The DOJ cited discussions among Google employees about raising ad prices to boost the company's revenue.
• Testimonies and internal documents: These indicated that Google does not consider rivals' ad prices, demonstrating monopoly power.
• Google Search ad CPCs: The DOJ highlighted that cost-per-click for Google Search ads more than doubled from 2013 to 2020.
• Project Momiji: This initiative, launched in 2017, was shown to artificially inflate the runner-up's bid, resulting in a 15% increase for the winning advertiser.
• Squashing: Google was found to increase an advertiser's lifetime value by raising the price against the highest bidder, leading to broader price increases.
• Randomized Generalized Second-Price (RGSP): Introduced in 2019, RGSP allowed Google to incrementally raise prices over time, which was not associated with better quality but led to a 10% revenue increase for Google.

The DOJ used these points, among others, to argue that Google's practices harmed advertisers by inflating costs and manipulating ad auctions.

Google's 'Project Momiji' had a significant impact on ad auction prices:

• Artificial Inflation: Project Momiji was designed to artificially inflate the bid made by the runner-up in the ad auction.
• Increased Costs for Winners: As a result of this inflation, the winning advertiser would end up paying 15% more than they otherwise would have.
• Increased Revenue for Google: This manipulation directly led to more ad revenue for Google, as advertisers were paying higher prices for their ad placements.

The Randomized Generalized Second-Price (RGSP) is a mechanism used by Google in its ad auctions:

• Definition: RGSP was introduced by Google in 2019 as a way to raise prices in small increments over time, which Google internally referred to as 'inflation'.
• Lack of Quality Improvement: Despite the price increases, 2019 Google emails revealed that the RGSP did not lead to better quality ads.
• Revenue Increase: The implementation of RGSP incentivized advertisers to bid higher, resulting in a 10% increase in Google's ad revenue.

Overall, the RGSP allowed Google to subtly increase ad costs, which significantly boosted their revenue without improving the quality of the ads served.

'Squashing' is a term used by the DOJ to describe a practice in Google's ad auctions:

• Mechanism: Squashing involved increasing an advertiser's lifetime value by comparing their predicted click-through rate (pCTR) to the highest pCTR and raising the price against the highest bidder.
• Broad Price Increase: Google's goal with squashing was to create a more broad price increase across the ad auction.
• Impact on Ad Auction Winners: The winner of the Google ad auction ended up paying more than they should have if squashing was not a factor.
• Negative User Experience: The DOJ indicated that squashing led to a negative user experience as Google ranked ads sub-optimally in exchange for more revenue.

The lack of search query visibility in Google's ad system presents several challenges for advertisers:

• Difficulty in Optimization: Advertisers find it nearly impossible to identify poor-matching queries, which is crucial for optimizing their ad campaigns.
• Negative Keywords: Without proper visibility, search marketers struggle to use negative keywords effectively to prevent their ads from appearing in unrelated or undesirable search queries.
• Increased Costs: This lack of transparency can lead to advertisers spending more on irrelevant clicks, thus harming their return on investment.

The DOJ argued that this practice is another way Google harms advertisers by obscuring the data necessary for them to refine and improve their ad targeting.