Alphabet Inc
In 2017, Google altered its advertising auction formula, leading to a 15% increase in prices and potentially earning the company billions in extra revenue, as stated by Michael Whinston, an economist testifying for the U.S. Justice Department in its antitrust case against Google, Bloomberg reports.
Whinston, a professor at MIT, revealed that through "Project Momiji," Google adjusted how it sold text ads to raise prices against the highest bidder.
Previously, the auction winner paid just a penny more than the second-highest bidder. However, Google discovered that the second-place bidder often bid only 80% of the winning offer.
To bridge this gap, Google introduced a handicap for the runner-up, making their bids more competitive. This change, "squashing," and charging more for ads with additional text, was estimated to boost revenues by 15%.
Whinston criticized Google for its lack of transparency in pricing but noted that advertisers could still discern changes even without explicit information.
Microsoft CEO Satya Nadella recently testified in the ongoing Google antitrust trial, shedding light on the competitive dynamics of the search market influenced by artificial intelligence (AI).
The Justice Department accuses Google of maintaining a monopoly over online search by paying significant sums to web browsers and smartphone makers to be the default search option.
Google's search ad revenue, contributing to over 60% of its total income, exceeded $100 billion in 2020. The company occasionally adjusted its ad auctions to meet revenue targets, as Google finance executive Jerry Dischler admitted in his testimony.
Price Action: GOOG shares traded lower by 0.97% at $137.39 premarket on the last check Monday.
