Regulatory Washington has an appetite for irony, contradiction, and paradox. This is on full display as the Department of Justice (DOJ) seeks to grow online advertising while Congress takes up laws to counteract those efforts.
The DOJ has joined several states in filing yet another antitrust case against Google. The new one is about online advertising, in which the DOJ holds that the company excludes rivals, “extracts inflated fees,” and has “taken supra-competitive profits.” As a result, “Website creators earn less, and advertisers pay more.” If the DOJ is right and wins the case, you’ll be the happy recipient of more online advertising, fewer newspapers, and less traditional media.
The new DOJ case is about how Google facilitates online advertising by helping advertisers place online ads, helping websites manage their ad-space inventories, and running an exchange where websites sell their ad spaces to advertisers. The DOJ claims that “Google has used anticompetitive, exclusionary, and unlawful conduct to eliminate or severely diminish any threat to its dominance” over these functions.
The DOJ describes a number of actions Google has taken that protect its services. It is possible that at least some of these actions have harmed consumers, in which case antitrust action may be justified. But the devil will be in the details.
It is also possible that at least some of Google’s actions have been necessary to ensure efficiency. Ad management processes are complex, so it is hard to make them work well together. It is also difficult to design and enforce a pricing system that keeps the whole system viable. For example, according to the DOJ, Google once configured its ad exchange in a way that led to higher ad prices and higher website advertising revenues. The DOJ says this is bad, and advertisers likely agree. But this type of pricing is how two-sided markets work: One side values the market more than the other, and so it pays more (think “ladies’ night” at a local bar). The DOJ notes that advertisers began finding ways around this exchange feature, and Google took action to plug the holes. The DOJ thinks this was anticompetitive, but it might have simply been Google trying to protect a system that makes everyone better off, as long as no one finds workarounds.
However, evidence suggests that the DOJ is wrong. The agency claims that Google has 40 to 90 percent market shares in various aspects of its advertiser, website, and exchange services. But data from Statista say Google will receive only 26.4 percent of online ad revenue in 2023, down from 31.6 percent in 2019. These numbers do not add up. And numerous consultants are successfully helping customers use alternatives to Google. Even if Google is being anticompetitive, it is not very good at it.
But while the DOJ is seeking to expand online advertising by lowering prices, Congress has been looking for ways to counteract online advertising’s impacts. In the previous Congress, several senators introduced the Journalism Competition and Preservation Act of 2022, which would have freed traditional publishers from antitrust restrictions if they were colluding against Big Tech. The argument for this legislation was that online advertising is too successful, making legacy local media companies unprofitable. (I have written on this issue here and here.) If the DOJ lowers the prices of online advertising, it will speed the demise of legacy local media.
Also in the previous Congress, three members introduced the Banning Surveillance Advertising Act of 2022, which sought to restrict targeted advertising. Targeted advertising uses detailed information about internet users to direct advertising to people who are most likely to buy the advertised product. Not waiting for legislation, the Federal Trade Commission (FTC) is seeking to create its own restrictions. But effective targeting is what makes online advertising so valuable, especially for small businesses. So while the DOJ is seeking to have more companies provide even more targeted advertising, some members of Congress and the FTC want there to be less.
What’s to be done? The Biden administration needs to decide whether it is for or against effective advertising. Having regulatory agencies work at cross-purposes only damages the economy. And Congress should think again before protecting an industry from competition. Consumers pay the price for that too.
(Disclosure statement: Mark Jamison provided consulting for Google in 2012 regarding whether Google should be considered a public utility.)
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