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Can Google Adwords be accused of Shill Bidding?

     
9:14 pm on Jun 7, 2007 (gmt 0)

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I've tested this out quite a number of times, and in every case it has tested true.

Here is the scenario - I find an adword that has no competition. Meaning - no other ads running at all. At the beginning, my quality score is high, and my minimum bid is low - usually .03 to .1 cents. I monitor very closely - then just as soon as another competitor comes along and finds the adword, my ad disappears with a "low quality score" and minimum bids are hiked up to 30 to 50 cents or higher. Usually within an hour of competitors ad showing up.

I have tested this enough times for it to be more than a coincidence - 100% of the time it plays out this way.

Shill bidding is when the seller of item being bid on artificially raises the bid price in order to raise the sell price of the item being bid on.

Google knows what the bid price of the competitor is - then they lower your "quality score" just enough so that you get into an artificial bidding war w/ the competition. This to me is Shill bidding, and is illegal in most states.

Maybe someone with some legal expertise should chime in here.

9:18 pm on June 7, 2007 (gmt 0)

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I'm fairly certain, in the US, that a company is free to price its products at whatever level it wishes.
9:23 pm on June 7, 2007 (gmt 0)

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I'm fairly certain, in the US, that a company is free to price its products at whatever level it wishes.

That's true - unless they are offering up a product in a closed auction - and know what the bid prices are. If I'm selling a product on ebay, I can't raise the price after it has been bid on. And I can't bid on my own auction, knowing what others are bidding on it.

10:17 pm on June 7, 2007 (gmt 0)

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i'd guess that site / landing page quality scoring has at least some relative scaling built into the system. since it'd be very hard to establish a baseline acceptable quality for every keyword, i'm guessing that you're being measured against competing sites / bidders for that keyword (so it's relative scoring, not absolute).

perhaps once a competitor shows up, you're now ranked on relative quality for this keyword and get whacked.

just a guess.

1:07 am on June 8, 2007 (gmt 0)

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What if the competitor is promoting the exact same website - using the exact same verbiage in their ads.

For some of these adwords - I'm running ads with affiliate links. Then a competitor comes along - uses my exact same ad, and links to the very same page I'm promoting. How could my "quality score" be wacked when compared? The site is exactly the same.

3:06 pm on June 8, 2007 (gmt 0)

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How could my "quality score" be wacked when compared?

Account history?

quality scoring has at least some relative scaling built into the system

I'd venture to say that this is the case as well, but I have no proof other than observation.

unless they are offering up a product in a closed auction

Is it really an auction, though? I don't think you're bidding on a product that Google is required to sell you if you win - you're simply indicating at what price you're willing to place an ad and Google is deciding whether or not they want to sell you the ad for that price.

7:59 pm on June 8, 2007 (gmt 0)

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Is it really an auction, though? I don't think you're bidding on a product that Google is required to sell you if you win - you're simply indicating at what price you're willing to place an ad and Google is deciding whether or not they want to sell you the ad for that price.

That's called an auction with a hidden reserve. - If it looks and smells like an auction - it's an auction. It doesn't matter that they've changed the verbiage. (min CPC = min bid).

If 2 people are trying to acquire the same product - and one of them can acquire that product by raising his payment offer - that's called an auction.

8:44 pm on June 8, 2007 (gmt 0)

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They're pretty clear on how the system works:

Your actual CPC will be determined each time one of your keywords enters the auction (this happens with every search for the keyword).

We'd have to see your statistics before/after the competitor enters the fray and also his statistics. It sounds like what is happening is your competitor is simply putting up a better ad, G is favoring that ad, and your price goes up.

8:47 pm on June 8, 2007 (gmt 0)

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terms are fairly clear on this

But contract terms can't overrule legislation, i.e. if something's not legal then there's no validity to a contract term that says it's allowed.

I think it's an interesting issue, we've been with Adwords since early days, and the pricing has now become opaque to the stage where it does feel as though Adwords is estimating our ability to pay and pricing accordingly, rather than running a fair market among advertisers.

Obviously I don't have any evidence of this - because the system's become so opaque, I don't see any way to get any. It's just based on my feeling, as a long-term bidder, of how the system responds to changed bids. I'm the first one to recognise that this could be incorrect - but since G's pricing is secret, how can I tell? They should move to greater transparency, it would increase trust and benefit them in the long run.

A.

update:

I'm fairly certain, in the US, that a company is free to price its products at whatever level it wishes.

Not at all, pricing is subject to legal restrictions including competition law.

8:51 pm on June 8, 2007 (gmt 0)

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They should move to greater transparency

100% agreed.

I just don't think the shill bidding argument has any merit. They don't say anywhere that "this is an auction, and the highest bidder wins". In fact, they say many times over that the highest bidder often does not win.

Not at all, pricing is subject to legal restrictions including competition law.

In this case? I don't think so. Anti-trust is fairly esoteric and not applicable to Google, really.

8:59 pm on June 8, 2007 (gmt 0)

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I just don't think the shill bidding argument has any merit. They don't say anywhere that "this is an auction, and the highest bidder wins". In fact, they say many times over that the highest bidder often does not win.

You're certainly right that they make it very clear that price is not the only factor.

But, if all the other published factors are the same (ad text, 'quality score', etc) then the highest-bid ad should win. I'm not clear that it does.

Ultimately agree with you that if G is misbehaving then it wouldn't really be shill bidding.

Could be an antitrust violation, perhaps. They do have a dominant position in the PPC market, I guess.

9:17 pm on June 8, 2007 (gmt 0)

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quality score

Exactly. And that's nebulous enough that it could mean anything.

Quality Score = (keyword's CTR, ad text relevance, keyword relevance, landing page relevance)*

*Where the interactions between the Quality Score variables change as we continue to refine how to measure and define quality in AdWords.

From their page here [adwords.google.com].

I've always thought that the way to approach it (if you wanted to sue them) wouldn't be through pricing or auction law, but through false advertising laws with real numbers behind it.

I'm not a lawyer, but if I had some free time and some money, it would be neat to walk into court with the following conditions:

1. CTR of 11%
2. Ad Text written by a seasoned professional who's won advertising copy awards
3. Keyword Relevance (exact match)
4. A landing page that's been cited in numerous academic papers for being the resource on a keyword topic

(btw - the case above is a very real example :))

I think the litmus test is that false advertising has to persuade people into buying something they otherwise wouldn't.

So, a basic formula that an ordinary person might assume to use is to multiply everything together, with 1 as a perfect score for the subjective variables:

(.11 x 1 x 1 x 1) = .11

whereas my competitor had a CTR of 5%, bad copy, mediocre relevance and a good landing page:

(.05 x .3 x .5 x 1) = .0075

And therefore the competitor would have to pay approximately 15x as much as I would. I know he's only paying 7x (I asked him), and so I assumed that I would be in the #1 position, but he is. Therefore I spent my money on the #2 position, and I wouldn't have done that if I would have known, because I wanted to be #1 and reasonably assumed I should have been based on the information presented to me.

It's a very wonky argument, but I think it's an interesting approach to take. If nothing else, it'd be interesting to see the information that came of it.

 

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