Google-Yahoo "auction" defense is a sham

Google's main defense of why Google-Yahoo is not a price-fixing arrangement that prices are set by competitive auction -- is simply not true. The "its an auction" defense is a sham, superficially appealing, but still a cover-up.  

• Google's full court press defense of the deal -- with back to back blogs by Google, plus a New York Times op ed defending the deal -- signal its crunch time at DOJ and that Google is mighty concerned.

Why is Google's "auction" defense a sham?

• First, what Google calls an 'auction' is not an auction.
  • The dictionary definition of an "auction" is a sale to the highest bidder.
  • Google prides itself on its innovation in creating an allocation process, it calls an auction, where keywords are allocated to whomever Google's optimization algorithm calculates can make Google the most money overall not to who bids the most.
• Second, the primary bidders in Google's so-called auctions, officially and publicly disagree with Google's characterization that prices are really set by auction.
  • Three very large groups of Google-Yahoo customers have all written independently to antitrust authorities stating that they believe Google-Yahoo will be able to increase prices. 
    • The Association of National Advertisers;
    • World Association of Newspapers; and
    • World Federation of Advertisers who recommended just today that the EU block the deal.
• Third, an estimated majority of keyword inventory has a reserve or minimum price that is actually set by Google or Yahoo. It is simply not factually true that all prices are set by auction, most are set by Google or Yahoo.
• Fourth, if Google runs a truly competitive auction, why does an independent analysis by search engine optimization firm Efficient Frontier (mentioned in the ANA letter) indicate that Google auction's generate ~35% higher premium cost per click than Yahoo's?   
• Fifth, how one can win an auction is secret. Google's algorithm is a non-transparent 'black box' where there is a quality score variable that largely skews/determines the results, but that bidders are not allowed to know about fully. (Trust, but don't verify.)
• Sixth, the 'House' can bid. What kind of true auction allows the auctioneer to bid in its own auction? Only a rigged one.  Moreover, how could a bidder ever win an 'auction' against the House that does not have to come up with a real cash payment, but just does an internal costless accounting transfer to itself. 

Bottom line: In a Sherman Act Section I case involving collusion and price-fixing -- DOJ only has to prove that the Google-Yahoo agreement would "restrict price competition."

• "Any agreement that restricts price competition violates the law" according to the DOJ antitrust primer.