Welcome to The Corner. In this issue, we dissect the Department of Justice’s painstakingly constructed case against Google for the illegal stranglehold it maintains over the digital advertising market and in doing so, explain how the ad tech market works.

DOJ Case Against Google Ad Monopoly Means a More Free Press and More Open Internet

Karina Montoya

Last week, the Department of Justice (DOJ) Antitrust Division filed a long-awaited suit against Google for illegal monopolization of digital advertising technologies, known as “ad tech.” The complaint dives deep into the last 15 years of Google’s conduct to dominate all segments of this industry. It was during this period that Google managed to lock publishers into using its tools and developed pricing manipulation schemes that shifted most ad revenue away from publishers and raised costs for advertisers.

Most news coverage has focused on the DOJ seeking to break Google’s ad infrastructure off from the rest of the corporation. And indeed, such an action — all on its own — would radically alter the structure of online communications and commerce. But as this complaint is the single most complete antitrust case on Google’s ad tech monopoly, there is a lot more to unpack as well. Here we will focus first on how the DOJ action reframes many of Google’s core business decisions in this market as anticompetitive conduct, as well as review the new evidence of harm against publishers that resulted from those actions.

Google, for example, likes to say its products are “integrated,” so there is not such a thing as market concentration. The DOJ has responded by clearly defining that ad tech tools operate, in fact, within three different product-forming markets: publisher ad servers (for publishers to manage their ad spaces), ad buying tools (for small and large advertisers to buy ads), and ad exchanges, which connect the supply and demand, and “enrich” the bids for ad spaces with data they source from surveilling users.

Google owns the ad exchange AdX, the publisher ad server Google Ad Manager, and two ad buying tools, DV360 (for large advertisers) and Google Ads (for small advertisers). According to the DOJ, measured by revenue, AdX’s share of the ad exchange market is 50 percent, Google Manager’s share of the publisher ad server market is 90 percent, and Google Ads accounts for 80 percent of the market in ad buying tools.

With this question out of the way, the DOJ then examines three key acquisitions by Google that – the agency claims – were designed to kill nascent competition in each segment. The first is DoubleClick, the publisher ad server Google acquired in 2007 after abandoning its own efforts to enter this market. This is the deal that has received the most coverage in media reports about ad tech.

The second is the ad buying tool Invite Media, which Google acquired in 2010 and merged with DV360 to solidify its dominance among advertisers. The third is the 2011 acquisition of AdMeld, a technology that allows publishers to compare multiple bids from competing ad exchanges with the goal of obtaining the best price for an ad.

It was this set-up, the DOJ claims, that allowed Google to establish opaque rules to benefit itself at the expense of rivals, as well as of the clients it was supposed to serve. Under the Google-made regime, advertisers and publishers rely on ad tech tools to place digital ads through a bidding process known as programmatic advertising. Marketed as an “efficient” way to reach large audiences, while also targeting ads to specific individuals, this ad-placing method depends on real-time access to user data, which is collected by Google and other powerful online platforms as users surf the web.

Of all the harms created by this system, the harm to publishers is by far the most conspicuous. An example of that can be seen in the DOJ’s description of a price manipulation scheme dubbed “Poirot,” based on an algorithm the tech giant launched in 2017 to thwart competition from a new bidding technology called header bidding. This technology was first introduced in 2013 to help publishers connect to more advertisers than they would have if they connected only to Google’s ad exchange AdX. In fact, using header bidding allowed publishers to connect to multiple large advertisers.

According to the DOJ, Google was able both to track this effort to circumvent its system, and then to use its power to reinforce its hold over the business, because most of these large advertisers relied on Google’s ad buying tool DV360. Given the fact that Google had insight into all market segments, the DOJ says Google was able to manipulate the bidding process of programmatic ads to redirect DV360 advertising spend away from header bidding and toward Google’s own ad exchange AdX. This scheme shifted about $200 million away from rival ad exchanges in 2017 alone, reducing the competitiveness of header bidding and the benefits it brought to publishers.

As one reads through the lawsuit, the unfair advantages Google enjoys by operating multiple conflicting interests are so stark, that the DOJ’s proposed solution — to break up Google’s ad tech business — seems clearly to be the only path forward. And precisely in making such a case, the DOJ signals that it is willing to think big. Indeed, the case against Google is the most far-reaching monopolization case since the breakup of AT&T in the early 1980s. For both publishers and advertisers, it means that a radically different future may be in store, as a win by the DOJ would liberate much of the $270 billion U.S. digital advertising market from its long stranglehold by a single corporation.

Join Open Markets for Important Conference, “Renewing the Democratic Republic”

On February 15, the Open Markets Institute will convene leading thinkers in today’s antimonopoly renaissance, including Senator Elizabeth Warren, Assistant Attorney General Jonathan Kanter, and Pulitzer Prize—winning playwright Ayad Akhtar, for a conference in Washington D.C. on the power of antimonopoly principles to renew American democracy, strengthen our economy, and construct a more peaceful and sustainable world. Organizations supporting this event include Color of Change, the Financial Times, Public Citizen, Americans for Financial Reform, Demand Progress, among others. RSVP here.

Open Markets Files Amicus Brief Over Amazon’s Coercive Practices Against Sellers

The Open Markets Institute filed an amicus brief in District of Columbia v. Amazon.com Inc alleging that Amazon uses its monopoly power to prohibit sellers and suppliers from offering better prices on their very own sites and rival platforms, even though Amazon itself charges high fees and commissions. The brief was filed in support of the District’s appeal after a Superior Court dismissed the District’s complaint, erroneously saying that only a firm with 100% market share can have monopoly power. “This is not the law. Courts have found that firms with 60% or 70% of the market can have monopoly power and are thereby subject to special rules under the antitrust laws,” OMI’s amicus brief contested. The brief went on to say: “Through most-favored nation and other similar trade restraints, Amazon has used its dominance of online retail to stunt the growth of rival platforms, coerce its sellers and suppliers, and perpetuate its power.”

Responding to OMI, Europe Boosts Enforcement of Big Tech

The European Commission has strengthened enforcement of the General Data Protection Regulation (GDPR), in response to a critique of the EC’s lax enforcement of over data protection and privacy regulations, by Open Market’s senior fellow Johnny Ryan. The Commission committed to examine every large-scale GDPR case, measure how long each procedural step takes, and what the relevant authorities are doing to advance the case. In his capacity as senior fellow at the Irish Council for Civil Liberties, Ryan said, “This heralds the beginning of true enforcement of the GDPR, and of serious European enforcement against Big Tech.” GDPR was first put into effect five years ago.

Open Markets Institute Launches Europe Office With Move to Block Amazon Deal

Open Markets Institute launched its Europe office with a bold initiative to block Amazon’s takeover of iRobot. OMI joined Foxglove, the Balanced Economy Project, and the Centre for Research on Multinational Corporations in asking the European Commission to block the $1.7 billion deal, citing competition and privacy concerns. OMI director of Europe and transatlantic partnerships Max von Thun was quoted in CTFN saying, “To really understand the serious harm this acquisition could inflict on consumers and innovation, it needs to look at how it would reinforce Amazon’s wider ecosystem and access to sensitive user data.”

📝 WHAT WE'VE BEEN UP TO:

Open Markets Institute’s executive director Barry Lynn said the DOJ’s case would be “remembered as one of the most important antitrust cases in American history. No previous corporation has ever posed such a direct threat to U.S. democracy, or to individual freedom of expression, action, and thought.” Read Lynn’s full statement here. Lynn’s public statement was quoted by CBS News and Common Dreams among others.
In an op-ed in Time magazine, OMI’s legal director Sandeep Vaheesan urged the Federal Trade Commission to enact a complete ban on non-compete clauses after it reviews public comments on its proposal to outlaw contracts that restrict workers from finding new jobs in the same sector or starting new businesses. The FTC “must hold the line and do everything it can to deliver a win for all workers in the United States,” Vaheesan writes.
OMI reporter Karina Montoya explains the DOJ’s case against Google in Tech Policy Press, describing the three Google programs — Bernanke, Bell and Poirot — used to manipulate the ad tech market and that form the basis of the suit against the tech giant.
Barry Lynn talks through the ramifications of the DOJ’s landmark case against Google on a podcast for Harper’s magazine. In particular, he discusses the damage Google’s monopoly has wrought on the country’s news industry.
Open Markets weighed in on a USDA proposal to update the Packers and Stockyards Act to better protect contract farmers from retaliation and discrimination by powerful meatpackers who have been able to threaten farmers with the threat of retaliation. Open Markets urged the USDA to expand its proposal by ensuring farmers can speak to the press without fear of retaliation. Open Markets also joined Food & Water Watch in their comment on the proposal, which urges USDA to lower the burden of proof for farmers to prove discrimination by meatpackers and clarify that farmers do not have to prove a harm to industry-wide competition in order to seek justice for individual acts of retaliation, discrimination, or deception.
OMI chief economist Brian Callaci published an essay for the libertarian think tank Niskanen Center describing the monopsony power long enjoyed by employers within labor markets and the counterbalancing effects offered by union power. “Unions are essential to counter the wage-suppressing power we now know is pervasive across labor markets, in which virtually all employers enjoy monopsony power,” Callaci writes.
Karina Montoya publish an article in El Tiempo Latino in which she examines how non-compete clauses disproportionately affect Latino workers, many of whom work in industries that require non-competes.
An American Prospect story on the aftermath of President Biden’s July 2021 agency-wide executive order to foster more competition in the U.S. economy cited antimonopoly recommendations from OMI legal director Sandeep Vaheesan — outlined in an earlier piece for the magazine — that appear to have been heeded. “I wasn’t really thinking of an executive order when I wrote the piece,” he said.
OMI food program manager Claire Kelloway was quoted in the American Prospect on the Department of Agriculture’s failure to implement a proposed rule that would impose improved labor standards for department contractors. Labor and environmental groups are calling on USDA to stop giving taxpayer dollars to agriculture giants with poor records on worker protections and environmental standards. “Breaking the law is a very clear unfair method of competition, and the department could reform its contracting to help remedy that imbalance,” she told the magazine.
A Forbes article on rising egg prices cited OMI’s reporting on consolidation in the egg industry, which it found led to supply chain vulnerabilities as well as widespread disease common among highly concentrated and industrialized poultry farms.

🔊 ANTI-MONOPOLY RISING:

The National Telecommunications and Information Administration (NTIA), a division of the Department of Commerce, identified the current mobile app store model as harmful to both consumers and developers, since it is dominated by either Apple or Google. The NTIA offered several policy recommendations that would introduce competition into the app ecosystem. (NTIA)
The Department of Justice is advocating for an end to Major League Baseball's longtime immunity from antitrust law in a dispute involving restrictions on the number of minor league teams that can be affiliated with professional clubs. The DOJ submitted an amicus brief to the 2nd U.S. Circuit Court of Appeals asking the court not to extend the sport’s antitrust exemption, granted by the Supreme Court in 1922. (Reuters)
The FTC is believed to be preparing for a potential lawsuit against Amazon for self-preferencing its own products and other unfair business practices. The commission deciding to sue would be a pivotal moment for Chair Lina Khan, who would be building on criticism of the company’s anticompetitive practices early in her career. (Wall Street Journal)

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📈 VITAL STAT:

$114 Billion

The amount in revenues Abbvie collected from Humira before the pharmaceutical companies' long lived monopoly on the lucrative arthritis drug comes to an end this week. (New York Times)

📚 WHAT WE'RE READING:

“Harming Competition and Consumers under the Guise of Protecting Privacy.” (Competition Policy International, Daniel Sokol & Feng Zhu). The authors explore how competition and privacy policies can operate at odds with one another in markets dominated by Big Tech, using the example of Apple's block of third-party tracking, which can benefit the corporation’s dominance over the app-store market while emboldening its entrance into digital advertising.

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