"Last Wednesday the CMA published its voluminous Final Report on its market study on online platforms and digital advertising, accompanied by 27 (!) detailed Appendices. This is a massive piece of work, and the CMA should be commended for completing it within just one year.
The Report examines ad-funded online platforms with a focus on three main areas: (a) competition in consumer services (primarily search and social media); (b) consumer control over data; and (c) competition in digital advertising.
I will not try to cover the whole Report (indeed, this would require several blog posts). For the purposes of this post, I will focus on the third theme, namely competition in digital advertising and in particular “open display”. This is an area where Damien and I have done quite a bit of research (and published several papers) and we were looking forward to see whether the CMA confirms our research. We were glad to find that it does in most respects.
Google’s position in the ad tech stack
The CMA found that online ad intermediation comprises a series of vertically related markets (e.g., ad serving for publishers, ad exchanges/SSPs, DSPs, ad serving for advertisers), in all of which Google has the strongest position. The markets for ad serving were found to be highly concentrated both on the publisher-side (with Google accounting for more than 90% of display ads in the UK) and the advertisers-side (with Google accounting for 80%-90% of ads served in the UK). Google was found to hold very strong positions also in the markets for ad exchanges/SSPs (50%-60%) and DSPs (50%-60%).
Vertical integration and conflicts of interests
The CMA noted that, while vertical integration can give rise to some efficiency benefits (e.g., when it comes to cookie matching), it may also be a source of conflicts of interests. The extent to which such conflicts harm customers depends, among others, on the market power of the intermediary facing the conflict and the degree of information asymmetry between it and its customers. Of all the forms of vertical integration, the integration of a DSP and of a publisher ad server within a single provider (as is the case of Google) was held to be the most problematic.
With regard to Google in particular, the CMA examined several ways in which the company has engaged in leveraging practices to build its position in open display. In particular, the CMA found that:
Google can leverage the importance of YouTube as a source of inventory to increase its market power in the DSP market (since 2016 only Google’s DSPs may buy YouTube programmatically). The CMA dismissed Google’s privacy arguments put forward to justify cutting third-party access to YouTube.
Google can leverage its search advertiser customer base through Google Ads (e.g., through the use of default settings) to strengthen its position in open display.
Google has made it harder for non-Google publisher ad servers to access Google demand (inter alia by not participating in header bidding), reducing competition in ad serving. Note that the CMA dismissed various arguments Google put forward to justify its decision not to participate in header bidding – in line with what Damien and I noted in a recent paper rebutting an analysis from Google’s advisers.
Google historically had a “last look” advantage over header bidders (again, confirming our analysis). While this “last look” no longer exists as part of Google’s switch to a single unified first-price auction in 2019, Google has rolled out a series of changes that may still enable it to tilt the balance to its favor, to the effect that publishers have to trust Google (citing our Trust me I’m fair paper). The CMA noted that Open Bidding was designed in a way to disadvantage third-party SSPs and Unified Pricing Rules were rolled out to increase Google demand’s win rate."
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