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>In this setup, the business that owns the advertising platform has an advantage over all other businesses in industry X, because it pays itself advertising rev

>In this setup, the business that owns the advertising platform has an advantage over all other businesses in industry X, because it pays itself advertising revenue, where the other companies have to pay their competitor. So money is always being siphoned off to pay the advertising platform, with a cost to most businesses but a (near) zero cost to the business owning the platform. I don't think this is quite right. If I have a fixed quantity to sell (approximately true for advertising space on the web) then units I buy from myself cost me the same as they would cost other companies. Suppose I have $100, and 5 advertising spots worth $20 each. I have two options here: a) If I sell the spots to others then I have $100 + 5 * $20 = $200. b) If I "sell" the spots to myself (the other wing of my company that needs to advertise) I have $100 and whatever 5 advertising spots are worth. You are representing the situation of b as if it were "free advertising", thus giving my company an unfair advantage. But in fact, compared with situation a, it is clear I paid for the advertising, as I am up 5 spots and down $100 I could have obtained by selling the spots. So advertising's cost is not lower just because I also own the company that sells the advertising spots. If I'm better off than someone without advertising spots that's because advertising spots are worth something, not because of any purported shady synergy I get from owning both the advertising spots and the company that needs them.

comex 9y ago
But let’s say the spots are actually only worth $10, in terms of the ability to generate revenue. If you sell them to someone else for $20, you win because you get more money than the slots were worth. If you sell them to yourself for $20, you don’t lose any money and you can still make $10 (which is more than the slots originally cost you). However, Google claims it is not doing this: > As part of the change, Google said it would operate its shopping-ad service as if it were a profitable, standalone business to ensure doesn’t overbid for ads. Still, “profitable” could be by the slimmest of margins, and Google would still have a strong incentive to keep the “standalone” business going (that is, the profit to their other business), whereas an independent company wouldn’t.
- daveFNbuck 9y ago
  If you sell them to yourself for $20, you have your original $100, plus the $10 * 5 dollars in ads, for a total of $150. Because $150 is less than $200, this means that diverting the ads to yourself loses you money.
cornholio 9y ago
However, winning ALL slots on a market dominant platform has a value unto itself, by denying competitors most revenue and forcing them to increase prices to cover fixed costs, and reduce price competition and market efficiency, strongly increasing the margins of the leader. So the ability to pay yourself unlimited money guarantees a market dominant spot where competition is drastically diminished. It also strongly affects Google's search incentives, making them prioritize advertising and create inventory where there was none, dying up organic trafic. This is something a profit oriented enterprise would tend to do anyway to maximize revenue, but it's a far cry from Google's original neutrality aspirations.
- savanaly 9y ago
  Let's say that winning ALL slots on a market dominant platform does have a value unto itself, and the total value is V. Then Google can consume the spots itself, but it is giving up the ability to sell the package of all slots to someone else for V. So it still costs them V. If Google is the only one who can extract V (likely the case, since they are the ones consuming the spots), they are reaping the benefits of that fact, not of being able to sell to themselves.

comex 9y ago

But let’s say the spots are actually only worth $10, in terms of the ability to generate revenue. If you sell them to someone else for $20, you win because you get more money than the slots were worth. If you sell them to yourself for $20, you don’t lose any money and you can still make $10 (which is more than the slots originally cost you). However, Google claims it is not doing this: > As part of the change, Google said it would operate its shopping-ad service as if it were a profitable, standalone business to ensure doesn’t overbid for ads. Still, “profitable” could be by the slimmest of margins, and Google would still have a strong incentive to keep the “standalone” business going (that is, the profit to their other business), whereas an independent company wouldn’t.

daveFNbuck 9y ago
If you sell them to yourself for $20, you have your original $100, plus the $10 * 5 dollars in ads, for a total of $150. Because $150 is less than $200, this means that diverting the ads to yourself loses you money.

cornholio 9y ago

However, winning ALL slots on a market dominant platform has a value unto itself, by denying competitors most revenue and forcing them to increase prices to cover fixed costs, and reduce price competition and market efficiency, strongly increasing the margins of the leader. So the ability to pay yourself unlimited money guarantees a market dominant spot where competition is drastically diminished. It also strongly affects Google's search incentives, making them prioritize advertising and create inventory where there was none, dying up organic trafic. This is something a profit oriented enterprise would tend to do anyway to maximize revenue, but it's a far cry from Google's original neutrality aspirations.

savanaly 9y ago
Let's say that winning ALL slots on a market dominant platform does have a value unto itself, and the total value is V. Then Google can consume the spots itself, but it is giving up the ability to sell the package of all slots to someone else for V. So it still costs them V. If Google is the only one who can extract V (likely the case, since they are the ones consuming the spots), they are reaping the benefits of that fact, not of being able to sell to themselves.