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The lawsuit against Google hinges on an antitrust “mistake”.

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IN 1912 America The Supreme Court ruled that a coalition of 14 railroad owners had used their joint ownership of a bridge across the Mississippi River, near the St. Louis station, to illegally stifle competition. The crossing gave the railway confidence a chokehold on traffic to and from the city’s main station. St. Louis was an important railroad hub. In the opinion of the court, the monopoly of power over the railroad bridge was thus a means of blocking the business of competing railroad operators across America.

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After more than a century, American trustmakers are preparing for battle with another giant in the networking industry. In January, the Ministry of Justice (dogg) a 155-page complaint against Google for monopolizing digital advertising on exchanges. It claims that Google used strong-arm tactics to shut down its advertising technology business. The case has been described as the biggest antitrust technology challenge since doggAn epic battle with Microsoft in the late 90’s.

Central to the case is Google’s 2008 acquisition of DoubleClick, which had developed as a market leader in the digital advertising space. It has become nearly an article of faith among regulators that the Federal Trade Commission (FTC) should prevent merging. As if to make up for that laxity, trustmakers have recently sought to block several tech mergers, including Microsoft’s purchase of Activision Blizzard, the video game maker. the dogg It seeks to dismantle Google’s ad tech business—in effect, undoing the DoubleClick merger. However, it is not at all clear that allowing this merger was actually a mistake.

To understand why, start with a simplified look at Google’s advertising technology “stack”. The middle layer is Google Ad Exchange, which matches buyers and sellers of ad space (or “inventory”). On one side of the market are website publishers who want to sell ad space. They send sales orders via a digital tool. DoubleClick for Publishers, acquired through the merger, is Google’s oldest sell-side software. On the other side of the exchange are ad buyers, who have two paths to the market. Agencies and large advertising buyers use demand-side platforms to bid for inventory. Small advertisers go straight to Ad Exchange. Google’s share of traffic ranges from 40% to more than 90%, depending on the stage of the journey. Bids and offers are matched by sophisticated algorithms in the instant between a website click and a display ad.

In such a situation, the best initial question is a straightforward one: Where is the choke point? Microsoft has been accused of tying Windows, the dominant operating system for desktop computers, to Internet Explorer in a way that sought to exclude Netscape and others from the web browser market. The windows were the choke point, just as the bridge to St. Louis was in the railroad case. The charge against Google is more complicated, or at least the story is a bit more difficult to tell. Monopoly place in doggHe says, it looks like a shift. First, Google’s strength lies on the demand side of digital advertising, with its adjoining strength in search advertising. Other times, the company’s control is on the supply side, which was strengthened when it bought DoubleClick. Other times, the center of market power is the exchange. This change in format may simply be how foreclosure works in digital markets. the doggTo be sure, Google’s trust experts are keen to present Google’s ubiquitous presence in the ad tech stack as inherently sinister.

But is it? Ad-tech Group’s profitability may reflect the fact that it is more efficient under one roof. The integration of the publisher’s ad server, exchange, and ordering platforms will likely result in smoother data flow, better matches between buyers and sellers, and a more streamlined experience. There are “network externalities” to consider. Ad Tech brings together distinct groups (advertisers, publishers, and consumers). Each type of customer benefits insofar as there is more customization than the others: advertisers want access to a wide range of inventory; Publishers want a lot of bidders for their display space; And so on and so on. In similar types of networks, it is common for a single organization to cater to all aspects of the exchange. Think of payment systems, which have a business relationship with credit card users as well as merchants.

implicit in dogg The case is the idea that the only path to a large part of the consumer market is through Google. Trust regulators like to define markets narrowly. The smaller the market, the larger the leading companies. For their part, companies like to claim that good alternatives to their products are everywhere: the head of Netflix once claimed that the company’s main competitor is “sleep”. It seems fair to say that “Open Web Display Advertising” is a distinct industry, because it has its own unique production technology. It’s not clear that it’s a really separate market from digital ads or plain old ads.

Back to the future

It is also not clear FTC He was lenient in allowing DoubleClick to be purchased. After all, the European Commission – it has no friend in US technology – allowed it after an in-depth investigation. However, there may have been a better option available, says William Kovacic FTC Commissioner at the time of the merger and now Professor of Law at George Washington University. Instead of suing in court to prevent a merger and (possibly) a loss, the agency could have pursued an internal administrative trial. This would have been awarded to the officials An opportunity to learn about the technology and update their practices, says Mr. Kovacic. It may have allowed remedies, other than a merger solution, to put Google in check. The charge of “non-enforcement of antitrust laws,” which today cements excessive merger control, might not have taken root.

This is barely water under the bridge. An epic court battle is now in the future. It may seem strange that this corner of the advertising business – which is almost the side of Google’s hustle and bustle – is the place to be. But antitrust cases often hinge on vague details or arguments. It’s no stranger, after all, than a Supreme Court ruling that overused a railroad station in St. Louis.

Read more from Free Exchange, our column on economics:
What would the ideal climate change lender look like? (23 February)
The Case for Globalization Optimism (16 February)
Google, Microsoft, and the Threat from Powerful Trust Makers (February 9)

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