ICLE White Paper Critiques the Antitrust Assault on Ad Tech

PORTLAND, Ore. (Nov. 3, 2022) – The digital advertising business has drawn attention from a growing chorus of regulators and competition watchdogs, who argue that the market is uncompetitive and dominated by its largest players. A new white paper from the International Center for Law & Economics (ICLE) examines those claims, finding that, rather than the monopolistic effects of rising prices and restricted output, digital advertising has become cheaper and more effective—evidence of vibrant competition.

Inquiries into advertising technology, or “ad tech,” have been launched on both sides of the Atlantic in recent years. Most notably, the State of Texas and nine other U.S. states (later joined by five more states) filed suit in December 2020 against Google alleging anticompetitive conduct related to the company’s online display-advertising business. It has been reported that the U.S. Justice Department (DOJ) may also bring a similar lawsuit before the end of the year. In addition, Sen. Mike Lee (R-Utah) and three bipartisan cosponsors earlier this year introduced the Competition and Transparency in Digital Advertising Act, which would require some of the largest Internet firms to break up their digital advertising businesses.

But according to white paper authors Geoffrey A. Manne and Eric Fruits, the key claims made against Google’s activities in digital advertising are based on a misunderstanding of U.S. antitrust law, or of the details of the digital advertising market itself. They note that digital advertising intermediaries like Google, Facebook and, to a growing extent, Amazon, that are vertically integrated into some or all components of the digital advertising “stack” of services use the prices charged to each side of the market to optimize overall use of the platform.

“As a result, pricing in these markets operates differently than pricing in traditional markets: pricing on one side of the platform is often used to subsidize participation on another side of the market, increasing the value to all sides combined,” Fruits and Manne write. “Consequently, pricing (or other terms of exchange) on one side of the market may appear to diverge from the competitive level when viewed for that side alone.”

The overall effect, they observe, has been falling prices: the Producer Price Index for Internet advertising sales is about 25% lower today than in 2010. In addition, major firms’ investments in ad tech and targeted ads have increased the effectiveness of digital advertising, making it more likely than ever that a given ad served to a given consumer will generate a response. Indeed, the authors contend that the digital advertising market’s history is one of dynamic innovation, with many new developments arising to solve problems created by previous innovations, address new innovations, and respond to market developments.

“U.S. antitrust law is intended to foster innovation that creates benefits for consumers, including innovation by incumbents,” Fruits and Manne write. “The law does not proscribe efficiency-enhancing unilateral conduct on the grounds that it might also inconvenience competitors, or that there is some other arrangement that could be ‘even more’ competitive.”

A copy of the full report, “The Antitrust Assault on Ad Tech: A Law & Economics Critique,” can be downloaded here. To schedule an interview with ICLE President Geoffrey A. Manne or Senior Scholar Eric Fruits, please contact ICLE Media and Communications Manager Elizabeth Lincicome at [email protected].