Google’s Preferential Treatment of Itself in Advertising Auctions
http://fortune.com/2017/01/20/google-search-engine-advertising-ads/
A big topic of discussion in our class has been the internet advertising market. We’ve learned that auctions take place which allow companies like Google to sell ad space, and we’ve found out how companies should bid in these auctions. In short, second-price auctions take place, meaning that the company with the highest bid wins the slot and pays the second highest price. Everybody is supposed to bid their truth value in these second-price auctions. But a Wall Street Journal analysis showed that Google might give itself preferential treatment in their AdWords auctions, perhaps implying that the theoretical dominant strategy isn’t necessarily the best way to bid.
Basically, the study found that in 25,000 searches which involved words like “phone,” “watch,” and “speaker,” products sold by Google (as well as its sister companies) almost always had the top ad spot. In fact, more than 90% of the time they’d have the highest ad spot, and 43% of the time they actually would have the top two ad spots. Google claims that its presence in advertising auctions doesn’t actually change the way that the auctions work. They apparently have a documented internal rule which insures that this is the case. And when the Wall Street Journal published their findings (earlier in 2017), a Google spokesperson said that the auctions are “consciously and carefully designed” to not impact other advertisers when Google is one of the bidders competing.
Although Google steadfastly stuck to its claim that there’s never been any misconduct in their advertising auctions, shortly after the findings were published, many of the previously top-spot Google advertisements disappeared. Whereas they were the first ad listed more than 9 times out of 10 prior to the findings being made public, afterwards they had the top spot in less than 20% of auctions. Very strange…