In search of a problem
The current era of trustbuster activism is based on a misapprehension.
In 1912 America’s Supreme Court ruled that a coalition of 14 railroad proprietors had used their joint ownership of a bridge across the Mississippi river, near the St Louis terminal, to unlawfully stifle competition.
The crossing gave the railroad trust a chokehold over traffic to and from the city’s main terminal.
St Louis was an important railway hub.
In the court’s opinion, the monopoly power over the railway bridge was therefore a means to foreclose the business of rival rail operators across America.
More than a century later, American trustbusters are preparing for battle with another giant in a network industry.
In January the Department of Justice (DOJ) set out a 155-page complaint against Google for monopolising digital advertising on exchanges.
It alleges that Google used strong-arm tactics to lock up the ad-tech business.
The case is billed as the biggest antitrust challenge to tech since the DOJ’s epic battle with Microsoft in the late 1990s.
Central to the case is the acquisition by Google in 2008 of DoubleClick, which had developed a lead in the marketing of digital-advertising space.
It has become almost an article of faith among regulators that the Federal Trade Commission (FTC) should have blocked the merger.
As if to compensate for this laxity, trustbusters have recently sought to block many tech mergers, including Microsoft’s purchase of Activision Blizzard, a video-game maker.
The DOJ is seeking to break up Google’s ad-tech business—in effect, undoing the DoubleClick merger.
It is far from clear, however, that allowing this merger was actually a mistake.
To understand why, start with a stylised view of Google’s ad-tech “stack”.
The middle layer is Google’s Ad Exchange, which matches buyers and sellers of advertising space (or “inventory”).
On one side of the market are website publishers who want to sell ad space.
They submit sales requests via a digital tool.
The antecedent of Google’s sell-side software is DoubleClick for Publishers, acquired in the merger.
谷歌卖方软件的前身是在合并中收购的DoubleClick for Publishers。
On the other side of the exchange are ad buyers, who have two routes to the market.
Agencies and large ad buyers use demand-side platforms to bid for inventory.
Smaller advertisers go directly to Ad Exchange.
Google’s share of traffic varies between 40% and over 90%, depending on the stage of the journey.
Bids and offers are matched by complex algorithms in the instant between a click on a website and a display ad appearing.
In a case such as this, the best initial question is a straightforward one: where is the choke point?
Microsoft was accused of tying Windows, the dominant operating system for desktop computers, to Internet Explorer in a manner that sought to exclude Netscape and others from the market for web browsers.
Windows was the choke point, just as the bridge to St Louis was in the railroad case.
The charge against Google is more complex, or at least the story is one that is harder to tell.