Google Admits to Tweaking Advertising Auctions for Revenue Goals

Jill Goldstein - May 15, 2024

In September 2023, Google admitted to making frequent adjustments to the auctions it uses to sell search ads, resulting in increased costs for advertisers, sometimes up to 5% on average and even 10% for certain queries. Jerry Dischler, a Google Ad executive, revealed this during a federal antitrust trial, mentioning that Google typically doesn’t inform advertisers about these pricing changes.

8 months later, the U.S. Department of Justice (DOJ) continues to hammer Google on their manipulation of search prices in their closing statements. The following slides are from the DOJ’s closing deck, which is specific to search advertising.

Google’s Monopoly Power

Google’s dominance allows it to control ad prices and dictate terms to advertisers. Additionally, they do not need to consider the competition’s ad prices. The following slides outline quotes from various Googlers discussing how they raise prices to increase revenue.

Tuning/Manipulating Prices

The Department of Justice outlined 3 things that are harming advertisers: format pricing, squashing & Randomized Generalized Second-Price (RGSP).

  1. Format Pricing: In the Google auction, advertisers never pay more than their max bid, however in 2017, Google launched a project called “Momiji.” Momiji artificially inflates the auction’s runner up’s bid. As a result, the “winning” advertiser experienced a 15% increase in cost.
  2. Squashing: A new product called “Kumamon” was introduced in 2017. It was indicated to incorporate more machine learning signals into the auction, however in reality it was “a simple algorithm consisting of bid, three quality signals, and some (mostly) hand tuned parameters.” In other words, it was another way for Google to “raise the price against the highest bidder.”
  3. RGSP: Randomized Generalized Second-Prize is a practice that Google uses to pick the winner of an ad auction at random for advertisers with similar ad ranks. The top bidder then “pays the price of the bid equal to the next-highest bid plus one cent.” The result of this was higher prices over time (AKA inflation). It did not however lead to higher quality.

These admissions shed light on Google’s practices in optimizing revenue streams, raising questions about transparency and fairness in digital advertising. Google has a big monopoly, which means they pretty much control the game. This affects how much we pay for ads in search auctions. Advertisers want a fair market where everyone has a chance, but Google’s dominance makes it tough. We need rules that keep things fair. In doing so, businesses can compete, and customers get the best results when they search online.

View all 143 slides from the DOJ’s closing statement here: https://www.justice.gov/d9/2024-05/421661.pdf.

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