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The Justice Department accuses Google of an advertising monopoly

STEVE INSKEEP, HOST:

If you do a Google search online and enter the terms Google antitrust lawsuit, you will find a lot of news stories because Google has been sued again. The Department of Justice and eight states filed an antitrust lawsuit against the search company, accusing it of running an online advertising monopoly. Let's discuss this with Luigi Zingales, professor of finance at the University of Chicago. Good morning, sir.

LUIGI ZINGALES: Good morning.

INSKEEP: So when I saw this news, my first thought was, isn't Google already being sued by the federal government? And I realized, in fact, they are, but it's different. So how is this antitrust suit different from the other antitrust lawsuit?

ZINGALES: Google does a lot of things, and most of us knows it for the searches, for the Google Maps, for YouTube. But in fact, Google runs the largest market in the world, the market for ads. Every year, five trillion ads are exchanged in this market.

INSKEEP: Wow.

ZINGALES: In this market, Google represent the buyers, which are the advertisers, represent the sellers, which are the publisher, and run the auction. So it does everything.

INSKEEP: Oh, OK. So the previous lawsuit, I think, was about Google search that you mentioned. This time, it's about that monumental advertising market. You just said five trillion, which is an eye-popping number of ads. But are they a monopoly, really?

ZINGALES: First of all, if we look at the traditional measure of market share, absolutely, because they control, like, 90% of some of the segment of this market. But let's look at the more substantive things, which are prices. In this transaction, Google get 30 cents on the dollar. Now, if you make a comparison with the stock market where we have more competition, intermediaries gets basis points, so fraction of a percentage points. And here, Google is able to get 30%. Now, how does it do that? - because it's able to aggregate both the buyers and the seller and to manipulate the market. One of the things that emerged in the complaints is that Google is able to intervene in the prices and favor either Paul or Peter, depending on the convenience, in the way it wants.

INSKEEP: You said a really interesting thing here, because I think it's hard for a lot of us to follow the various ways that Google may allegedly manipulate the advertising market. But you're telling me they are able to command so large a cut for themselves just for passing an ad along - 30% of the value, 30% of each dollar - that almost by definition, they dominate the market. Is that what you're telling me?

ZINGALES: Yes. It's very hard to explain why they are able to retain so much in a competitive market. And in fact, what is interesting and what I read in the complaint is that even the Google executives themselves recognize that if the market was more competitive, they would lose some of that cut.

INSKEEP: Is there a case to be made that there are other big companies that sell ads - Facebook comes to mind - and that the market is constantly changing and evolving, and maybe Google has a temporary monopoly in one market segment or another, but it's really not that important? Is there that case to be made?

ZINGALES: Look, you can always make a case that eventually competition will come in, technology will change and etc. The question is how long is eventually? AT&T had a monopoly on phones, and eventually they lost it. First of all, it took the antitrust to do it, but eventually...

INSKEEP: Yeah.

ZINGALES: ...You had a new technology, etc. The question is how long will it take and how much consumers are hurt in the meantime?

INSKEEP: What is the remedy here? What would the Justice Department have Google do?

ZINGALES: I think that one simple idea is to force a separation between the role of - for example, representing the buyers, representing the seller and running the auction. Another is to get much more transparency on the prices. Most of the stuff that goes on on Google Ad Exchange would be illegal in the stock market. It's just that we don't know because there's no transparency.

INSKEEP: Do you think in the end, Google should just be making a lot less money?

ZINGALES: I don't think that the purpose here is to penalize Google. If Google makes money by inventing new products, I'm very happy that they make the money. The point is that here, they are not inventing new products. They are taking advantage of a monopoly position. And that needs to end.

INSKEEP: Do - would you expect it's going to take years, though, for this to reach a resolution?

ZINGALES: Yes, But I think the remedy here is part the trial. So the exposure of facts in the trial will be crucial to reduce this monopoly.

INSKEEP: Luigi Zingales is at the University of Chicago and host of the podcast "Capitalisn't." Thank you so much.

ZINGALES: My pleasure. Transcript provided by NPR, Copyright NPR.

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