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Antitrust Lawsuit Accuses Google of Manipulating Ad Market

Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: January 15, 2022
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Google is said to have manipulated ad auctions to the company's advantage. (Image: pixabay / CC0 1.0)

Newly unredacted allegations in a lawsuit filed by several U.S. state attorneys reveal that Google misled advertisers and publishers with regard to the pricing of its ad auctions. The scam, which ran for several years, used secret code to make sure that buyers who were favored by Google won ad bids at highly inflated prices. The unethical practice generated huge profits for the tech giant. The lawsuit, which was first filed back in Dec. 2020, is being led by Texas Attorney General, Ken Paxton.

The lawsuit states that Google’s ad market manipulation was aimed at reversing the trend of third parties winning ad auctions as it hurt the company’s interests. To achieve this objective, Google deployed three programs – Project Bernake, Reserve Price Optimization, and Dynamic Revenue Share.

Of the three, Project Bernake is said to be the most notable. Bernake sought to manipulate ad auctions. Google would put money into a “Bernake pool” that would be later spent to inflate bids to make sure that they always won over the bids of third parties. Three different versions of Bernake were developed between 2010 and 2019.

In the first version, advertisers and ad publishers were misled to think that they were taking part in a “second-price auction” in which the one who wins the bid will only have to pay the second-highest quoted bid price. 

However, the Bernake program would sometimes knock out the second-highest bid so that ad publishers only received the third-highest bid. Google would then charge advertisers the second-highest bid, pocketing the difference as profit.

By pooling money made in such a manner, Google manipulated ad auctions. The lawsuit cites Google’s own research which showed that the manipulation resulted in publishers losing up to 40 percent of their potential revenues. 

The second version of the Bernake program used the pooled money to inflate bids related to Google Adwords, the company’s ad-buying tool for small advertisers. Such action was only taken when the bids were poised to lose auctions.

“A third version of the program, called Bell, penalized publishers that didn’t give Google what the complaint calls ‘preferential access’ to their ad inventory by redirecting the pool of money it collected to those that did… Publishers were eligible for those funds only if they participated in Google programs such as Dynamic Allocation, which gave Google’s AdX the right of first refusal against competing exchanges in auctions,” the WSJ reported. By manipulating its ad exchange, Google is said to have made $228 million annually through its Bernake pool.

The Reserve Price Optimization program was used to set minimum prices for advertisers by looking at their previous bids. As a result, advertisers often ended up paying higher prices for their ads. In the Dynamic Revenue Share program, Google changed the feed collected by its ad exchange in a manner that helped the company’s tools win more ad auctions.

Ad publishers have expressed outrage at the recent revelations. “We suspected Google was running a rigged game but we never imagined they could be so utterly dishonest both to their publisher partners and their advertising clients…” 

“It’s a staggering breach of trust and business ethics and has cost publishers and advertisers including all the small mom and pop shops who have struggled through the pandemic, hundreds of millions of dollars… You can only wonder how much more is to come out of this can of worms,” one major publisher told the Daily Mail.

The court papers also included details of “Project Jedi Blue,” a secret collusion Google had with Facebook for rigging the ad market. Facebook was apparently given an advantage in Google’s ad auctions, with the social media platform receiving discounted ad exchange fees, fixed win rates, etc.

David Chavern, president and CEO of the News Media Alliance, pointed to the revelations in the lawsuit as enough proof to destroy the argument that Google wins only because its products are better. “Anti-competitive side deals and market manipulation don’t count as innovation,” he added. News Media Alliance is a non-profit based in Washington D.C. that represents almost 2,000 news organizations operating in the United States.