Capitalisn’t: Google—The New Vampire Squid?

Dina Srinivasan: This is the economic engine of a free internet. And if advertisers like you and others across the economy are paying more to buy ads, it’s inevitable that the American population is seeing this tax come through in the form of higher-price goods and services.

Bethany: I’m Bethany McLean.

Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?

Luigi: And I’m Luigi Zingales.

Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.

Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.

Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?

Luigi: And, most importantly, what isn’t.

Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.

Luigi: One of the major issues in capitalism today is, of course, the role of digital platforms and the limits that antitrust laws should impose on them. In late 2020, the DOJ brought a case against Google’s search engine business. A week ago, the DOJ brought a case against Google’s advertising business—which, by the way, represents 80 percent of its profits.

Speaker 8: The Department of Justice and eight US states have just filed a lawsuit, an antitrust lawsuit, against Google, alleging uncompetitive practices in the ad-tech market.

Luigi: The allegations that the DOJ is making is that Google is monopolizing this market and overcharging the advertisers, which eventually means overcharging all the consumers, because the cost of advertising is eventually rebated on consumers.

Speaker 9: For 15 years, Google has pursued a course of anticompetitive conduct that has allowed it to halt the rise of rival technologies. In so doing, Google has engaged in exclusionary conduct to severely weaken, if not destroy, competition in the ad-tech industry.

Luigi: This is one of the most important cases against the digital platforms that goes to the essence of what digital platforms are, i.e., a two-sided market, where Google intervenes on both sides of the market with a massive presence.

This is in the same ballpark as the case against Standard Oil in the early part of the 20th century, the case against IBM in the middle of the 20th century, and the case against Microsoft in the last part of the 20th century. There have been three cases like this in the last 120 years. It’s pretty shocking that you don’t see many people talking about it. And I suspect one of the reasons is that the case is complicated, and the only people who know anything about it are people who are experts, and most of the experts are conflicted.

We thought we would do our listeners a favor by adding a special episode dedicated to the foundations of this case. And to this purpose, we invited an expert in the advertising market, because neither Bethany nor I is an expert in this area.

We organized this interview at the last minute in order to keep up with the news. At the last minute, Bethany could not come for family reasons, so I will have the difficult task of carrying on this interview alone.

Let me start by introducing our special guest, Dina Srinivasan. Dina is a lawyer by training, a successful entrepreneur in the ad space, and more recently, a researcher. She’s a fellow with the Thurman Arnold Project at Yale University, and she has consulted with the state attorneys that brought their own antitrust case.

Let me start with the basics. How does the online ad market work? And what role does Google play in it? To make things very concrete for our listeners, imagine that we, Capitalisn’t, want to advertise in the New York Times. How do we go about it? And what role does Google play in this process?

Dina Srinivasan: Well, Luigi, that’s a great question to start off this conversation. Almost all online ads today are actually bought and sold in lightning-speed auctions that happen on centralized ad exchanges. If you or anybody else wants to buy ad space that’s being sold on those ad exchanges, you have to use a tool that transmits bids. And if you’re selling inventory—let’s say you’re the New York Times looking to sell your ad space—you also have to use a sell-side tool to send your inventory into the ad exchanges to sell them.

Google owns and runs the largest intermediary or tool on the sell side. It also operates the largest ad exchange, and it also operates the largest buy-side tools that both small advertisers, such as yourself, or large-enterprise advertisers, like a General Motors, might use to bid on ads trading on exchanges.

Luigi: Let me get this straight. Capitalisn’t needs to use Google Ads, which will bid on Google Ad Exchange for ad posts offered by DoubleClick for Publishers, which is owned by Google.

Dina Srinivasan: That’s right. You got it.

Luigi: That reminds me of . . . Remember the old movie, It’s A Wonderful Life? There is James Stewart’s nightmare of Bedford Falls that has become Pottersville, where you get a loan from the Potter Savings and Loan to finance the purchase of the house built by Potter Construction for Potter’s industry workers. I thought that all this was illegal. Is that legal?

Dina Srinivasan: It is legal, because it’s a market that’s completely unregulated. But, as the Department of Justice has pointed out in its complaint, as Google itself has internally noted, “The analogy would be if Goldman or Citibank owned the New York Stock Exchange.”

Luigi: But I have heard many people object that, after all, there is still a possibility of going somewhere else. Capitalisn’t is not obliged to go to Google Ads. Google Ads controls 80 percent of the small ad market. Capitalisn’t could choose a different intermediary. If so many customers still choose Google Ads, isn’t that an indication that Google Ads is providing a better service than the competition?

Dina Srinivasan: Well, let’s see. You’re asking me, as somebody that has been in the market, I personally am not aware of any other tool that Capitalisn’t might use to go and effectively bid on ads that will show up on publishers like the New York Times.

At a first level, I would take issue as to whether there are viable competitors to Google Ads in the United States, period. And on another level, it’s very difficult for small advertisers, because of the opacity in this market, to really understand whether they’re getting a good deal or not when they’re using Google Asds as a tool. The DOJ complaint uses the words “black box” four times. This interferes with competition, because if you don’t know, as a customer, whether you’re buying good-quality ads for a good price, it also interferes with the mechanism of competition in that market.

Luigi: One thing that I realized reading the DOJ complaint is that not all—and this is obvious, maybe it’s my stupidity that I didn’t realize it before—but not all impressions are created equal. So, if Bethany looks for something, or Bethany’s daughter looks for something, the value of Bethany’s impression is much higher than the value of her daughter, because she probably has a bigger purse and is more willing to buy bigger items and expensive items.

And Google is not only the buyer, the seller, and the auctioneer, but it also is the one who knows the most about the value of these impressions. Because they know that when I open my Google Chrome and I search for a trip to the Caribbean, Google knows that I have the wallet to pay for the trip to the Caribbean, and maybe it even knows that I actually searched for a trip to the Caribbean last week, and so I’m very likely to be ready to buy a trip to the Caribbean. And so, that impression is worth a fortune, isn’t it, Dina?

Dina Srinivasan: It is. Let’s say Google had an information advantage about the identity of the user loading an impression on a page at a particular time. And let’s say you had an environment where that impression is coming up for sale, or it’s coming up for auction, and there are 20 different bidders in that auction that are looking to submit a bid. If those other bidders don’t know the identity of the user, there’s a term for this in the industry, and that’s called bidding blind. That causes them to return a low bid, because they don’t know whether it’s something good or whether it’s something bad.

But if Google, in this situation, is the only entity that knows the identity of the user and knows that it’s a very valuable user, they might be able to bid intelligently and therefore win that impression at auction. And on top of that, if Google happens to know, then nobody else knows the identity of the user, they might bid a lot lower than they would have otherwise and still win.

Luigi: But my understanding is also that they can decide to share some information with some friends, but not with others. And in so doing, they make everybody want to be their friends. Because if you have this information, you can be much more effective as a bidder. And if you don’t, you might end up stuck with a bunch of impressions that are of bots rather than of real people.

Dina Srinivasan: That’s very true. We’re dealing with a market with a lot of bots, a lot of fraud, a lot of variability in the value of impressions for sale, and information is the key to everything.

Luigi: Can you help our listeners understand how Google reached a 90 percent market share on the publisher ad side, the New York Times side? You are a lawyer, so you know much better than I do that the path is very relevant to how a case is determined. If a company like Google Search achieves market dominance simply by offering a better service at a lower price, then antitrust has nothing to say about it. But if this dominance has been achieved through acquisitions or methods that don’t ensure what I call the survival of the fittest, then the DOJ has a strong case.

Dina Srinivasan: Sure. The story really starts for Google with the acquisition of DoubleClick. DoubleClick was by far the largest inventory-management and selling tool that publishers used at the time. It had about 60 percent market share. And after acquiring DoubleClick, it launched an exchange called AdX. And then, it basically tied its presence on the buy side, or its market power on the buy side, with the sell side.

Most people and most listeners would probably just know Google as a search engine and as the owner of YouTube. It’s selling search ads and it’s selling YouTube ads. Back around 2008, maybe 2010, I don’t remember the exact date, but basically, all of these millions of advertisers that were going to Google to buy search, Google started to automatically opt them into also buying display ads. And then it routed their bids only into Google’s exchange, AdX, and then it only returned competitive bids to publishers that were using DoubleClick.

Now, you put that tie in combination with the fact that it’s very hard for publishers to switch ad servers. They’re very sticky, they have high switching costs, and this effectively coerces publishers to use DoubleClick and not anything else in the market. And this strategy was very effective. The DOJ goes into how it allowed Google to basically corner the sell side of the market and increase its market share from 60 percent to 90 percent within a short period of time.

Luigi: However, that was not enough, because at some point, a bunch of competitors started to have this idea of bypassing Google Publisher with some form of script that was called head bidding. Or what was it?

Dina Srinivasan: Header bidding. Yes.

Luigi: Header bidding. Yeah. Can you explain this header bidding? And what did Google do to fight back?

Dina Srinivasan: If you’re a publisher and you’re dealing in an electronically traded market where you have to send your ad space out to be sold on exchanges, and there are many, many exchanges on which to sell your ads, what do you want to happen with your inventory? You basically want your ad server to send it out to multiple exchanges at the same time and solicit the highest bid.

Google had a program called Dynamic Allocation whereby Google’s ad server gave certain preferences to Google’s exchange or only allowed Google’s exchange to return a competitive bid. And so, this depressed the bids or the bid values that publishers were receiving on their inventory. And header bidding was a piece of code that publishers could slip into the header section of their HTML site to go out into the market and to work around Google’s restrictions and to solicit bids from multiple exchanges at the same time.

As soon as publishers were able to do that, the prices for their inventory, the clearing prices for their inventory in these auctions, increased drastically. The DOJ is alleging that Google did many different things to stop this. Google was noting how other large technology companies were supporting header bidding, such as Facebook and Amazon, and Google wanted them to stop supporting header bidding.

Another thing that the complaint alleges is that Google launched a program it called Open Bidding with a code name of, I think it was Jedi, whereby Google tried to get publishers to stop routing to header bidding and to route to Google’s open-bidding program instead. Google was sort of beating the system by secretly manipulating auctions.

On the buy side—because on the buy side, it’s representing advertisers and sending bids to exchanges—Google was supposed to send their bid. And here, we’re talking about the large advertisers using Google’s large-enterprise tool. It was supposed to send their bid onto multiple exchanges to try to acquire the inventory that the advertisers wanted.

But Google had a secret program called Project Poirot that secretly manipulated bids that were going to exchanges in header bidding. It would take an advertiser’s bid and manipulate it downward by a certain percent, sometimes up to 90 percent, so that the bids were noncompetitive and would not win if they were going to a header-bidding exchange.

And so, through certain types of very complex and complicated auction manipulations that supposedly neither publishers nor advertisers knew anything about, Google was sort of able to beat the system and force things to come back and trade on Google’s exchange.

Luigi: Speaking of projects with funny names, the one that caught my attention is called Project Bernanke. It’s clearly named after the former Federal Reserve chairman and now a Nobel Prize winner in Economics. I would like to understand, number one, what that is, and two, why did they pick that particular name?

Dina Srinivasan: I wish I knew the exact reason that Google picked that particular name. I think there’s a mention in the complaint about it resembling quantitative easing on the ad exchange. The program itself, however, referred to what the DOJ is calling auction manipulation: a supposedly secret way that Google in these auctions was manipulating advertisers’ bids to basically win when it otherwise would not have won, or to pay publishers the value of lower amounts or lower bids in situations where publishers should have been making more money.

Luigi: But I understood—and maybe I’m wrong—that occasionally Google was actually posting two bids instead of just one, and then ex post deciding what was the valid bid to determine the price.

Dina Srinivasan: Right. So, there’s an allegation that, basically, the way you’d normally expect—and the way that perhaps Google’s customers expected the ad exchange to work—is that those that had a seat to bid were returning their highest bid, their best bid, and then Google was simply running an auction. But when it came to Google Ads, which is the tool that millions of small advertisers use, Google was actually throwing, through this Project Bernanke, two bids into the exchange auction, not one. And then there was some sort of manipulation that was happening to the bids in the auction.

Luigi: So far, we have discussed what in antitrust is called the conduct, but in order to have an antitrust case, you need to have a consumer harm. What is the consumer harm here? If I am Capitalisn’t, maybe I have to pay a bit more to post my price on the New York Times, but the New York Times makes a little bit more money. So, is that bad? What is the overall consumer harm?

Dina Srinivasan: I think we have to be careful, especially in this case, to assume that if you’re paying more for ads, that that benefit is in any way, shape, or form being realized by the seller in that market and not simply being taken out in the middle by the intermediaries that are running or manipulating these auctions. And that goes to your consumer-harm question.

The way that I would think about it is that, look, this is the economic engine of a free internet, and if advertisers like you and others across the economy are paying more to buy ads, it’s inevitable that the American population is seeing this tax come through in the form of higher-price goods and services, however small that might be.

And on the other side of the equation, if websites are receiving less money for what they’re selling, we also experience that as consumers in the form of more paywalls, higher subscription costs, or even more irritating ads on a page.

Luigi: Because at the end of the day, at least the DOJ claims that for every dollar spent in ads, Google in one way or another gets up to 35 cents, right?

Dina Srinivasan: That’s right. That’s what they’re saying.

Luigi: That’s a huge cut. Let’s discuss the other side of the equation, because many people say, sure, there is all this overwhelming evidence. However, Amazon is making significant inroads in the online ad market. And so, while in the past, things might have been terrible, in the future, things will be fine, and we shouldn’t waste our time in an antitrust suit, because Amazon will fix our problem. How would you respond to that criticism?

Dina Srinivasan: We really have to be specific about what we’re talking about. Are we talking about Amazon selling lots of ads in the Amazon search results, which is what we’re really talking about when we’re talking about Amazon today? Does that make inroads into, for example, Google’s monopoly on the sell side of the market, in the ad-server market that the DOJ complaint takes issue with? I don’t yet see Amazon posing a significant threat to, for example, the sell side of the market where Google has its stranglehold currently.

Luigi: Let me try another sort of criticism. This one, I think, is more informed because it comes from Ben Thompson of Stratechery. He is basically accepting that Google has aggregated the long tail of advertisers, so no publisher can do without them. And Google has levered this access into control of the operating system of advertising, and with that, it systematically controls the market. But again, that’s his claim, that control is rooted in the individual choice of advertisers. So, is this a crime? At the end of the day, they chose freely, so this is not an antitrust violation.

Dina Srinivasan: I see. OK. Well, the Department of Justice challenges this under tying antitrust law. So, there’s a concept in antitrust law which says that you can’t force somebody to buy something, to buy one product, in order to get another product that you have a lot of market power in. And that is the flavor of this allegation in the complaint. Publishers were forced to license Google’s ad server in order to deal with all of the advertisers using Google’s buying tools.

The other thing I would point out, just from a big-picture perspective, is that this type of behavior was not normal in the market. It looks like an outlier.

Luigi: I’m with you. However, Thompson and others are claiming that this might actually survive under the current interpretation of antitrust law because . . . You know much more than I do about this, but there is this famous Supreme Court decision of Verizon v. Trinko, where they say that firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust, since it may lessen the incentives for the monopolist, the rival, or both to invest in those economically beneficial facilities.

They’re basically saying that Google has invested so much and created this fantastic software so the New York Times can bid easily everywhere. If the only game in town is the result of the fact that they made some fantastic investments, you cannot force them to share that with others, and you should let them go.

Dina Srinivasan: But there’s a higher principle in antitrust law. As it currently stands, it’s OK to have a monopoly, as long as you get there through competition on the merits. So, did you get your monopoly by trying to create a better product or service for the consumer?

But the flavor of the DOJ complaint is very different. It’s saying, here you are running this tool called Google Ads for advertisers, and you’re telling them you’re going to help them buy ads that have the highest return on investment, that have a good return on investment. You’re going out and you’re telling the market, “Hey, come use my product, because my product is the best to go out and bid on and buy ads.”

And yet you’re turning around and doing something that is against the customer’s interest. You’re doing it secretly. You’re secretly manipulating their bids. You’re secretly forcing them to pay higher prices for ads, not lower prices.

Luigi: If the court agrees with your view, what are the remedies?

Dina Srinivasan: Well, it’s a little bit early to be talking about remedies. Remedies come after the courts decide what bad conduct has happened. We then want to try to fashion or find remedies that resolve the specific bad conduct alleged. Right now, the DOJ has everything on the table. So, they’ve asked for divestiture, which is breakup, and specifically, they’ve asked for divestiture of the sell side and the exchange. This is just basically putting everything on the table and punting the question to a later time.

Luigi: But some people are claiming that you cannot unscramble an egg and that the integration that has taken place between, for example, the publishers and the ad exchange make it very difficult to separate the two.

Dina Srinivasan: Well, that’s a common and strategic position for companies to take to try to convince a court not to break them up. What I’m trying to say is one defense to breakup is that if you try to break this up, you’re really going to screw up the market. You’re going to break things. Things are going to get worse. Don’t do it. Pick some other remedy.

It’s common to hear these stories. The position that I take as somebody that has worked at large companies is, if one of these large firms themselves wanted to spin off a piece of software, or if private equity wanted the firm to spin off a piece of software, would it really be that hard to unscramble? I really don’t think so.

Bethany: I apologize, everyone, for being absent from the recording with Dina. Family matters got in the way. Luigi’s interview was excellent, of course. And now, I get to ask him about it. Luigi, what was the most important takeaway from your conversation with Dina?

Luigi: The most important takeaway is how complicated this stuff is. I was thinking the other night, you hear people talking about antitrust all the time, but most of the actions that we see in antitrust are merger reviews, whether you allow a merger to go forward or not.

And then you have some cases against price fixing that are quite straightforward. The so-called monopolization cases are actually quite rare. Of course, the case of, again, Standard Oil was one, IBM was another one, and the case of, I guess, Microsoft was another one. But these are cases in which a company has become so large mostly through internal growth to represent a threat to competition.

This is a difficult thing to prove, because there is an alternative view, which has a very strong backing in economics, which is to say that you don’t want to punish winners. If I am the iPhone, and I am so unique and so beautiful that everybody wants to buy me because I am so unique, I don’t want to punish Apple for having invented a beautiful thing like the iPhone. To use a sports analogy, you don’t want to punish an athlete who succeeded because he runs faster than everybody else, but you do want to punish an athlete who wins because he kneecaps his competitors.

Bethany: Yep. But I read the case a little bit differently, and explain to me why I’m wrong, which is that it wasn’t a case of Google developing a beautiful iPhone-like product, purely. It was a case of Google actually, via acquisitions, very cleverly figuring out how to build a moat around all the different pieces of its ad business.

Luigi: You are absolutely right, but with an important caveat. The FTC already got to review the merger cases at the time, and they validated them. So now, they have to go back and say either, “Oh, we were completely wrong in the past” . . . I understand that this time it is the Department of Justice, while that time it was the FTC, but still, saying we were completely wrong at the time; we didn’t anticipate this.

But most importantly, this is part of a strategy. The case is much bigger than that. The acquisitions are clearly important, but they’re not the only reason why this took place. And that’s the reason why it was not so easy at the time to see it, but I think it is a case based on hurting through a monopolization act rather than simply a merger review or a price-fixing case.

Bethany: That is a really interesting answer. I couldn’t help thinking that Google was playing chess while the FTC was playing, I don’t know, something a lot simpler than chess. The FTC was looking at each merger in isolation without understanding what Google was intending to do with all the pieces, whereas Google was very cleverly assembling all the pieces. And that’s really interesting that this case is, in a way, an invalidation of the FTC’s prior decisions.

But I wanted to go back to what you had said when you started talking about the complexity, because that’s for sure what struck me, too. As I read through the complaints and tried to understand how these markets worked, I realized there’s this critical part of the economy. And what’s truly terrible is that it’s a part of the economy that has devastated how I make my living, which is journalism.

And I just had no idea how all these pieces . . . and I still can’t say I understand how all the pieces fit together. There are a couple of references in the complaint about stock exchanges or exchanges for financial products, and I felt that this was almost like reading Greek, in a way. And I think you’re exactly right, that that’s why it hasn’t gotten very much compelling coverage, because it’s really difficult material.

Luigi: And to be honest, I think Google plays on the complexity to create a shadow and do all the tricks in this shadow, because at an earlier Stigler antitrust conference, we had the chief economist of Google, Hal Varian, and one person from the audience raised a question about how this auction takes place or some details. And Hal Varian on purpose said, “It’s very complicated. I can’t get into the details.” He was very sort of wishy-washy, which is very indicative of how Google gets away with this. It gets away with it by being so powerful that people are afraid of it, but also by being so complicated that you cannot put a simple tagline in a newspaper, in a tweet, saying, “This is what I’ve done.”

Bethany: Exactly. And it’s a really good red flag, because the truth of the matter is, if you want to explain something, you can find a way to do it. And if you don’t want to explain something, then you take refuge in complexity.

Let’s back up for our listeners. One question I had off the bat was, how does this case affect the case against Google that was brought under the Trump administration? Are they entirely separate? Can they proceed on entirely separate tracks? And does this one add to that case at all?

My understanding of the read is that they’re completely different. One was challenging Google’s dominance in search, and this is completely different. And, to my reading, it’s probably a more substantive case, which doesn’t mean that it’s going to be any easier to win, but this one struck me as the right case to bring, whereas at least what people said to me about the search case was that it wasn’t the right case to bring. And I don’t know if your view is similar to that.

Luigi: I agree completely that this is a much more substantive case, and I think this case has a much bigger chance of winning than the other one. It’s very easy to identify the consumer harm, it is very easy to identify the conduct that is anticompetitive, and as we’ll discuss, there is even—which is always the best case—the smoking gun.

The part that Dina could not discuss freely, because she was part of the state attorney antitrust case, but it’s also mentioned in the complaint by the DOJ, is that there is a document called Jedi Blue about an agreement between Facebook and Google. And while the agreement is not exactly an agreement on price fixing, it is an agreement on quantity fixing. If there is one demand curve, you can either fix a price and get the quantity, or fix the quantity, get the price. One or the other are the same.

The moment you have Facebook and Google, which are competitors, signing an agreement . . . And by the way, after this agreement, Facebook gets out of the display part of the market. They remain in the app ads, but they go away from the web-display ads. So, it’s really like you see the mafia family dividing the territory: this is mine, this is yours. What more can you get than that?

Bethany: I thought so, too. I was stunned by Jedi Blue. And the only thing I found distressing was that, at least in the state’s complaints, some of the information about Jedi Blue was blacklined, so you couldn’t actually get some of the gory details about what Facebook executives and Google executives were saying to each other about it. But that certainly seemed like a smoking gun to me.

Do you have a simple way to explain what that agreement is? I’m embarrassed because, back to my comments about complexity, what I’m supposed to be able to do is to put complicated things into simple words, and I struggled to come up with that. Maybe if I’d had 24 more hours, it all would have been good, but anyway—

Luigi: Let me try. I’m not as good as you are, but let me try. First, the context is important. This is after Google bought DoubleClick. By buying DoubleClick, they already controlled most of the publisher side of the market in the ad market. Some companies are trying to bypass the Google Publisher application by creating some competition on the side. And one of the big players who can really change the equilibrium is Facebook. Exactly, Facebook and Amazon. Now, there is no record of what they have done with Amazon, but they reach an agreement with Facebook in which they agree not to use this alternative competitive system that is called header bidding. And Google gives several advantages to Facebook in exchange. It’s basically like, you don’t go with the competition, and I pay you. How do I pay you? OK, I discount the fees, I give you a speed advantage so you can bid in the auction faster.

Most importantly, I give you information about which impressions, i.e., what ads, are really valuable and which are not. Because the part that most people don’t fully appreciate is that Google in this market has an enormous informational advantage, because it knows whether the person that is searching for a trip to the Caribbean is Bethany or Bethany’s daughter. Bethany’s daughter does not have, I imagine, a purse to pay for the trip to the Caribbean. She might lobby you for the trip to the Caribbean, but she does not have the credit card to pay for the trip to the Caribbean yet, and Bethany does.

Bethany: Oh, wait, she’s memorized the credit-card number, so she actually does have the credit card, but that’s another story. Keep going.

Luigi: OK, so that’s dangerous. But anyway, the point is that for most people on the face of the earth, Bethany searching for a trip to the Caribbean and your daughter searching for a trip to the Caribbean is exactly the same ad, but one is worth a lot, and one is worth close to nothing. Because you’re using Google Chrome, Google knows who is Bethany and who is her daughter.

What Google offers to Facebook as an exchange is they’re going to provide this information to Facebook. So, that’s super valuable information that they give in exchange for not going with the competitors. And then, they also sort of promise that they will restrict the use that they make of Facebook’s big data in bidding against Facebook. In this agreement, Google admits that they use the information they have on the bids of other people to manipulate the final price.

We know that, for example, in the stock market it is very important who sees the order book, because this gives you an enormous advantage. Google knows everything, knows the order book, goes there on the demand, goes to the order book on the supply, knows everything, and promises to Facebook, “We are not going to use this information against you, Facebook. We’re going to, of course, use it against everybody else, but not against you.” And, last but not least, they even fix the minimum percentage of impressions that Facebook will win. So, I cannot see dividing the share of the market more than this. To me, it is like the smoking gun.

Bethany: I wanted to get to the point you said about the complaint, which is that you think this is more winnable than the other complaint, and that it does seem to you that this is a winnable case. That, I wasn’t as sure about, because . . . But I’d love to hear your point of view first on why it is winnable.

Luigi: I think that the essence of a winnable case, in my view, is to have juicy quotes to put in front of a jury. If I have to explain to you that I reduce the consumer surplus by X amount with a complicated mathematical model, et cetera, no one understands. But if I tell you a couple of quotes, like the famous quotes that emerged in the Microsoft case, that I’m doing that to kill the competition . . . Any action whose only purpose is to kneecap the competition, to keep going with our sports analogy, is illegal. And so, if I can just show your intent—I’m not a lawyer, but that’s enough to win a case.

Now, how long it will take to win the case, and how good Google would be in kind of neutering the effect of the case . . . because Microsoft lost the case, but then, to some extent, it won the war, because the case was about the separation between the operating system and the software. And then, when it came time to impose that separation, the judge had cold feet, and eventually, this was never sort of implemented. So, Microsoft lost, but de facto kind of won.

Bethany: Except, in the biggest way of all, Microsoft lost, because the company lost its mojo and didn’t really get it back until Satya Nadella stepped in as CEO, and the company was able to capitalize on the cloud. So, these big cases do have a way of changing a company’s focus and making it impossible for them to continue operating in the way in which they had beforehand.

I wonder about that, particularly in the face of the rise of chatGPT and these other seemingly, possibly existential threats to Google’s business, what that actually means for them. And as a corollary to that, do we want to see Google broken up? Do we want to see Google destroyed? Would this destroy them? And I’m actually not sure of the answers to all those questions. On a purely moral basis, it’s really easy to say, “Take them down.” But as I think through what some of the repercussions might be, I’m a little less clear about what the right answer is. What about you?

Luigi: So, first of all, you are absolutely right that Microsoft’s growth was slowed down by the trial. Some of the anti-antitrust people say, you see, this is very costly, it’s distracting, and that’s the reason why Microsoft lost, as you said, the mojo and why Google runs the risk of losing its mojo in this moment.

You can look at it from the other point of view and say, actually, what these cases are useful for is that they project a lot of light on this topic, and under the light, they cannot do those illegal actions that harm competition and are very profitable. So, part of the reason why they lost the mojo is because they couldn’t be doing what they were doing before and trying to monopolize the market.

So, I think that, actually, it’s very useful that Google precisely in this moment is under the lamp. Because if it has a better version of AI, kudos to it. If it doesn’t, I want the next Google to come around, exactly like Google did to Microsoft back then.

On the point of whether I want Google destroyed, the answer is, absolutely not. First of all, I love Google products. I live with Google Search. I live with Google Maps, because I can’t even find the route back to my house without Google Maps these days. And now, even Google Scholar is fantastic. So, I think that many of these products are fantastic, and the last thing I want to do is to destroy this product. And I think that even casting this as a choice between letting Google go or destroying Google is kind of a bad casting, because it’s like saying, oh, if you want to prevent the mafia from taking advantage of its position, then you are against all forms of commerce and you don’t want commerce take place, and, actually, no. Microsoft was late to the game of innovation because they were sitting on a monopoly. We can say, in some way, the same thing about Google.

Bethany: Yeah, I think that’s an interesting point of view. I guess I’m a little bit less sanguine about it than you are, because anytime a company has to go through a transition where its investor base is going to be completely different, that’s problematic. And in the world of Silicon Valley where there has been—and maybe this is a caveat to what I’m saying—but such fierce competition for talent, the cloud of uncertainty swirling around Google, if it looks like this case is not going to go Google’s way, it is going to make it very, very difficult for them to compete in any meaningful fashion, at the very same time as, or exacerbated by, investors deciding to put their money in a different company and a sliding stock price that makes it more difficult to lure employees with stock-based compensation.

That said, right now, Silicon Valley is laying off lots of workers. The competition is a little less frenzied than it has been in the past, so Google has gotten lucky, but I think it will be interesting to see how this plays out. Microsoft really did lose its mojo for almost 15 years, and part of that was just that with the rise of other companies who could use their stock to attract employees, Microsoft couldn’t, because there was this existential threat to its business hovering over it. So, I think it’s going to be interesting.

Luigi: This is interesting, because you are raising a novel ground of antitrust. If I have a monopoly which will give me extraordinary growth, I will be able to attract the best employees through the prospect of stock options that will reinforce my monopoly. And so, I stay in a virtuous loop. And so, maybe antitrust plays a role in breaking that loop and giving a chance to other people.

Bethany: But I guess the bigger question is, if this does derail Google in any meaningful way, is that a positive for the US economy, or is that a negative?

Luigi: I think that depends a lot on how intense the competition is for research at the top, and whether Google was contributing so much to advance it or to delay it. The only comparison I have is to look at history. And historically, we’ve seen that any attempt to basically enforce antitrust in dominant platforms or dominant companies led to a spurt of growth and not the opposite. While it was bad for Microsoft at the end of the ’90s, it was fantastic for the US economy. There was a boom at the same time in dot-com, the boom that created the success of Facebook and Google. The antitrust case against IBM basically led to the PC revolution, which was fantastic for the US economy. It is bad for the profits of the incumbent, but great for the country and the world.

Bethany: I like that argument a lot. I also like to believe that restoring some autonomy to publishers would be helpful for our economy and our democracy. I think we agree there can’t be a functioning democracy without a free and functional press. And Google and Facebook have certainly played a role in demolishing the functionality of the press from a financial standpoint. And so, there is part of reading this complaint that makes me mad and thinks that, per your point, it isn’t good for our economy, and it hasn’t been good for our society, and it’s been unfair and at a huge possible cost.

Luigi: Yeah, but I want to stress, because on the one hand, we know that cars kill buggy whips and buggies and horses, but we shouldn’t have kept horses simply because we like horses. And to the extent that technological innovation changes the business models, I think that’s OK, in my view. What is not OK is, number one, the—

Bethany: Wait, are you calling me a buggy whip?

Luigi: No, I’m just saying . . . No, not you. Not you, but the old journalism model in some ways is changing. I think it is changing. Now, we need to be careful in not being too enamored with the past, because the past has a lot of beautiful things, but it’s not going to come back. We need to think about how to deal with the future.

But the point I want to stress is there are two things that are problematic. The first one is that, on top of the disruption that technology brought, the monopolization that, according to the DOJ, Google had over the ad market brought additional problems that were not just technologically driven. And that is the one I consider Google responsible for.

The other part that nobody discusses, but to me is even scarier, is that by having a monopoly over advertising, basically Google has an enormous power over which news is diffused and which news is not. Because if you say something that Google does not want you to say, they demonetize you, which is basically tantamount to killing you.

Bethany: Yeah, I agree. That is incredibly, incredibly frightening. And there is this large and growing argument that all social-media companies, Google included, have been behaving as publishers without acknowledging they are publishers, hiding behind supposed algorithms that are doing all this completely fairly. And, as the “Twitter Files” revealed, there are actually a lot of personal, human decisions going into all of this. So, yes.

Luigi: Sorry, this is much worse than publishers, because publishers operate in a regime of competition. This is worse than the Inquisition. The Inquisition was deciding what books were in the Index of Prohibited Books that you couldn’t print and which books you could. And, basically, Google is doing the same with a newspaper and everything that is online. Unless you have a subscription base, Google decides whether you can live or die.

Bethany: Well, I think now that we have equated Google and the Inquisition, I think maybe we need to close on that note.