What happens when Google bids on its own ad slots?
https://searchengineland.com/how-google-ads-impact-bids-pricing-adwords-auctions-269153
While Google’s main source of revenue maybe advertising, Google, and its parent company, Alphabet, also sell a variety of other products. One example is the Pixel, and Android smartphone sold by Google. So what happens if a user of Google’s search engine is looking for a new phone and searches Google with the keywords: “new phone”? An auction will be held for the ad slots on that page and Google may also enter into that auction to advertise is Pixel phone. The above article examines what Google does when it runs its own ads in its auction.
According to the article, Google runs an auction very similar to a second price auction. The advertisers announce their bids and then Google combines this value with a quality score of the ad the advertisers are bidding for to produce an AdRank score. The slots are assigned to the advertisers in decreasing order, with the Advertiser with the largest AdRank score getting the first slot. The cost of your ad is determined by combining your quality score and the AdRank of the advertiser that got the slot after yours. However, when Google enters the auction and competes for ad slots, other advertisers are charged as if Google wasn’t bidding at all. The article gives an example of this where if Google wins the second slot, then the advertiser who got the first slot is charged based on the AdRank of the advertiser who got the 3rd slot. Google does this so that it does not directly inflate prices in its own auctions. However, Google is still indirectly inflating prices simply by taking part in the auction and taking a slot that another advertiser would have gotten if Google had not participated. This could make the other advertiser bid higher for the next auction, meaning that Google has indirectly inflated the prices.
However, the article points out that in auctions where Google is a bidder, Google’s ads get the first slot 91% of the time. Google’s response is that its ads only appear at the top if that ad has a high enough quality and a high enough bid. It also says that its in-house ads are subject to a marketing budget. The article does criticize Google’s lack of transparency on this issue, and it is true that all other advertisers must trust that Google isn’t giving its ads special treatment. The article acknowledges that there isn’t really an easy fix to increase Google’s transparency, so, for now, everyone has to trust that Google is playing fairly.