Transcript Search Engines and Online Advertising: Antitrust Issues

Search Engines and Online Advertising:
Antitrust Issues
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Daniel L. Rubinfeld
Professor of Law and Professor of Economics, Emeritus
University of California, Berkeley
Professor of Law, NYU
Deputy Assistant Attorney General
 Antitrust Division, DOJ, 1997, 1998
Conference of Western Attorneys General
July 13, 2011
Overview
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Is Search itself an antitrust concern?
Can dominance in Search cause injury?
Is Online Search advertising an antitrust problem?
What are the similarities and differences between U.S. v.
Microsoft and current Google investigations?
Search: Are there Antitrust Issues?
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Antitrust concerns focus on harm to customers, not on
harm to competitors. Key: Do customers have choices
with respect to search?
Achieving success (even dominance) through the
creation of a better product is pro-competitive.
Does Google have monopoly power in search?
 Requires substantial barriers to entry
 Is there evidence of a high minimum viable scale?
 Is there evidence of a high minimum efficient
scale?
 Requires consistently high profit margins
 Search is free; profit comes from advertising
 Focus: Online advertising
Antitrust Issues (continued)
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What is the relevant market?
 Search?
 Online Advertising? Online Search advertising?
Who is likely to be harmed?
 Individuals who use search engines?
 Those who sell advertising?
 Those who read ads?
What are the anticompetitive practices?
 Offering a better search engine?
 Exclusive deals?
Search Issues
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Does Google or Bing or Yahoo get paid to artificially rank
search responses?
 Not to my knowledge.
 Gaming the system is a problem, but not an antitrust
problem. Bing and Google and Yahoo! have an
incentive to remedy these problems.
Search competition generates winners and losers, but
this is not an antitrust issue.
Bing and Google have exclusive contracts with OEMs,
but Bing has more in the way of exclusive distribution
than Google.
Economics of Advertising
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Advertising, in general, occurs in a two-sided market
 Two-sided markets arise when two different types of users may
realize network benefits by interacting with one another through
one or more platforms/mediators
 Examples: credit card networks, dating sites, and video games
Publisher
• Pays to place ad
on website
Advertiser
• Provides free
website content to
consumers
• Receives
subsidized online
content by viewing
ads
Viewer
Economics of Advertising
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Cost-per impression
 Cost for advertiser based on the number of times
the ad is displayed on a webpage (and the number
of times the page is displayed)
 May be good for branding but does not
necessarily encourage immediate sales
 Display is usually CPM
Economics of Advertising
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Cost-per click
 Cost for advertiser based on the
number of times the ad is clicked
 Unlike offline advertising, this pricing
metric gives advertisers viewer feedback
 The publisher has an incentive
to target the advertisement more closely to potential
consumers
 CPC helps align the incentives of
the advertiser and publisher
 Search is typically CPC
CPC and CPM Compete
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High click through rate can be profitable when ads are
targeted, even with a small number of exposures
For low click-through rates, the publisher might prefer
to sell ads that generate a lot of impressions
Publishers can be expected to vary prices for CPC
and CPM to the point at which the two compete.
Market Definition of Online and Offline
Advertising
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Critical Loss Question: Does online/offline advertising discipline the
pricing of offline/online advertising?
 Offline: Would offline advertisers shift a significant portion of their
advertising expenditures (to online) in response to a price
increase of online advertisements by a hypothetical monopolist
such that the price increase is unprofitable?
 Online: Would online advertisers shift a significant portion of their
advertising expenditures (to offline) in response to a price
increase of offline advertisements by a hypothetical monopolist
such that the price increase is unprofitable?
There is Competition between Online
Search and Non-Search Advertising
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Goldfarb-Tucker (2007) – “online context-advertising
competes in a broader advertising market that includes
offline marketing communications channels”
The FTC has viewed search and non-search as separate
markets in the past, but competition has been changing
at a rapid pace.
Today, there is substantial competition between display
(CPM) and search (CPC).
Conclusions
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There appear to be substantial differences between Microsoft’s
market power and anticompetitive behavior as proven in U.S. v.
Microsoft and Google’s alleged market power and anticompetitive
behavior relating to both search and online advertising.
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Online advertising is constrained to some extent by competition from
traditional advertising media.
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The debate about whether search and non-search ads are likely in
the same relevant market continues.