A 🧵on Google’s Project Bernanke, one of the way the states allege that Google manipulated online ad auctions to its benefit
The newly unsealed complaint includes a ton of details about HOW Google allegedly manipulated its online ad auctions. To follow how it worked, you need to know a little bit about how different types of auctions work.
The type of auction on TV w/ people raising their hands in the air is known as a “first-price” auction. Everyone bids in the open and the highest bidder wins. Simple. So, if Henry bids $19, Alice bids $18 and Scott bids $9 — Henry wins and pays $19.
Economists don’t love these kind of auctions because they can lead to people paying more than they need to to win.
Hence, the creation of a “second-price” auction (also known as a Vickery auction). In this type, the winner is still the person who bids the highest. But they only pay how much the second-place person bid.
The idea behind this is people will be more likely to bid higher for things they want with the knowledge they will only have to pay as much the second-place person bid. It’s the same way eBay auctions work.
So in our analogy, if Henry bids $19, Alice bids $18, and Scott bids $9 — Henry is the winner but he will only pay $18.
One more type of auction: third-price auction. The winner is again whoever bids the highest but they pay the amount bid by the third-highest bidder. So, if Henry bids $19, Alice bids $18, and Scott bids $9 — Henry is the winner but he will only pay $9.
According to Texas, Google told everyone that its online ad auctions were second-price auctions. But in reality, it was using third-price auctions and then pocketing the difference.
Going back to our previous analogy, in a real second-price auction, the winner (Henry) would have paid the second-price ($18). The publisher would have taken home $14.40 after Google took out its 20% fee ($3.60)
In reality, Google would tell the website publishers that the winning bid was $9. The publisher would get $7.20 after Google took its 20% fee ($1.80). Meanwhile, Google would tell the advertisers that the winning bid was $18.
The extra $9 between the two bids, Google put into a “pool” that it would use to secretly raise the bids by advertisers using its tools to ensure they would always win out over advertisers using non-Google tools.
Bernanke increased Google’s annual revenue by $230 million per year, the states allege.
The states allege that Bernanke was part of Google's efforts to monopolize the online ads market but also a violation of state consumer protection laws that outlaw deceptive conduct.
Google's conduct was deceptive, they allege, because it told publishers/advertisers one thing (it was using second-price) when it was doing another (third-price).

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