The DOJ’s monopoly case against Google fails by any reasonable standard

The Department of Justice targeted Google’s web advertising business in its latest anti-big tech litigation. The Justice Department alleges Google used a monopoly in online advertising to capture profits from website publishers and advertisers by coercing consumers and acquiring or eliminating any meaningful competition. 

However, the Department of Justice (DOJ) failed to demonstrate any specific harm to consumers at September’s trial and November’s closing arguments. The DOJ’s case does not account for innovations like ad blockers and uses a definition of the online advertising market that captures only a small and shrinking portion of the overall digital advertising market.

To try to prove its monopolization claim, the DOJ cited a common belief that changing ad servers is a sufficiently difficult process, making any company that owns both the server and exchange an anti-competitive monopoly. This allegation falls under the “duty to deal” doctrine in antitrust law. In cases where a firm has monopolistic access to a key technology or process, it must give competitors the chance to use that technology to compete. This is especially common when a company wishing to sell a product or service can’t afford a significant, upfront investment but would like to rent or license what technology already exists.

A classic example is mobile phone technology. Large carriers routinely license their network to newer, smaller carriers that can offer lower prices. This increased competition provides more choices and benefits to consumers.

In this advertising technology (AdTech) case, a “duty to deal” would require Google to allow other companies access to their ad server technology and platform to facilitate ad sales between publishers and advertisers, which would likely chill investment in improving Google’s AdTech. In fact, Google has already integrated other exchanges using its header bidding product. Header bidding allows publishers to collect bids from multiple exchanges, creating additional revenue.

The first applicable test of the “duty to deal” doctrine is the “no economic sense” (NES) test. In this case, the no economic sense test is whether or not Google allowing a competitor to access its advertising platform would be harmful or beneficial to Google. If Google profits from the integration but refuses, it can be forced to allow other companies to use its exchange. 

The “business sense” test is similar, but instead of a licensing firm, the court will evaluate from an advertiser or publisher’s point of view. If Google could benefit from integrating other ad exchanges into Google’s AdTech, a court could compel the company to allow increased integration.

In both cases, the outcome is uncertain at best. It’s unlikely a competitor to Google would license Google’s AdTech for a higher price than Google charges. If for a lower price, the no economic sense test would fail.

The “business test” is uncertain. In the short term, it’s plausible that a lower advertising price would improve the open web advertising market for publishers and advertisers since search costs would be lower. 

However, if Google decides against investing in improving its AdTech suite, these efficiency gains will fade away. A concrete example is in the complaint. In response to unsold ad space, Google created a product feature called dynamic allocation, which allows multiple types of auctions to happen simultaneously. Dynamic allocation improves both advertisers’ targeting and publishers’ revenue.

Without these investments, publishers and advertisers would be worse off, with ads going unsold and lower revenues for publishers.

The Justice Department also ignores how consumers may change the digital ad market to suit them better. For example, end users have changed their internet use with innovations like ad blockers. The percentage of users who use ad blockers has increased from 15.7% to 27% over the last decade. In a poll, 81% of ad blocker users cite “avoiding interruptive/annoying ad experiences” as their main motivation for doing so. 

Publishers and advertisers respond by changing their page layouts to minimize the space ads occupy, improving the type of ads on the site, or blocking site access to users with ad block software. The effect on the volume of ads is unclear, but the quality of ads and targeting have improved.

The broader digital advertising ecosystem is also changing. Users are also migrating away from the open web and moving toward closed systems. New players in the ad market, such as Netflix, TikTok, and Amazon, have increased their market share by building their walled-garden approaches to advertising, leaving Google behind.

As a result, the open web market has seen reduced fees for ad exchanges and a shrinking share of the overall digital advertising market. 

The Department of Justice’s case against Google fails on each count. It fails to show how adding competition to an existing technology would make advertisers or publishers better off and ignores that competition is growing outside Google’s AdTech stack as consumers migrate to standalone platforms like Amazon or Netflix.

In this case, a win for the Department of Justice would validate Federal Trade Commission overreach, and that, not Google building a better mousetrap, would be the real harm to consumers.

The post The DOJ’s monopoly case against Google fails by any reasonable standard appeared first on Reason Foundation.

Source: https://reason.org/commentary/doj-monopoly-case-against-google-fails-reasonable-standard/