Google’s Hail Mary pass: The two-sided market

ALEXANDRIA, Va. (CN) — As Google attorneys prep for closing arguments in the Eastern District of Virginia antitrust case brought by the U.S. Department of Justice, they could use a get-out-of-jail free card. And they may already have one.

Google’s legal team argues that the advertising technology at the center of their most recent antitrust trial operates within a two-sided market. In this worldview, Google executives are not, as the feds claim, operating their ad business as a monopoly. Indeed, two-sided markets do business in a distinct way that must be taken into account — a point established by the U.S. Supreme Court.

“In a two-sided market, there’s no way to have one side without the other,” said Brian Albrecht, chief economist at the International Center for Law and Economics. “What you’re selling is a service that matches the two sides.”

While not exactly a household term, this concept could stave off a conviction.

What is a two-sided market?

The website Investopedia defines a two-sided market as one that exists “when both buyers and sellers meet to exchange a product or service, creating both bids to buy and offers (asks) to sell. This can occur when two user groups or agents interact through an intermediary or platform to the benefit of both parties.”

In the landmark 2018 case. Ohio v. American ExpressJustice Clarence Thomas wrote for the majority that American Express Company and American Express Travel Related Services Company operate a two-sided platform, providing services to two different groups, cardholders and merchants, dependent on the platform to intermediate.

Why does it matter?

The concept could change the way U.S. District Judge Leonie Brinkema, a Bill Clinton appointee, handles the case.

As explained on The International Center for Law and Economics website, “Conduct that may appear anticompetitive when the effects on only one set of customers is considered may prove to be entirely consistent with — and actually promote — healthy competition when the effects on both sides are examined.”

In Ohio v. American Expressthe Supreme Court ruled 5-4 that with the business considered a two sided market, prosecutors had failed to show anticompetitive effects of an anti-steering policy.

Analysts writing for the Lexology website concluded the ruling “will likely make it more complicated to bring antitrust claims against operators of platforms that can be characterized as two-sided or multi-sided, requiring an antitrust plaintiff to show net anticompetitive harm across all sides of the market.”

Google’s argument

In court filings, Google’s legal team asserts that evidence at trial establishes a two-sided market for display ad transactions. “The purpose of ad tech is to facilitate matches between advertisers and the individuals viewing advertising impressions on digital content,” they argue.

In their view, behemoths such as Amazon, Microsoft, Meta, and TikTok — as well as lesser known tech firms — compete for a share of display advertising “in a single two-sided market connecting publishers and advertisers.”

The Justice Department’s argument

In briefs summarizing the trial, Justice Department attorneys depict the tech giant as a monopoly: “Google has used its dominance in three separate ad tech product markets to exert control over its customers, its competitors, and the very rules by which open-web display ads are bought and sold billions of times every day.”

As the feds see it, Google holds every string. It controls the dominant publisher ad sever, the dominant advertiser ad network, and the dominant ad exchange in between.

They have asked the court to order the divestiture of Google’s Ad Manager suite — including both Google’s publisher ad server and Google’s ad exchange.

The big picture

Google is already dealing with the fallout from a previous antitrust conviction. Earlier this year, a judge in Washington ruled that the tech giant violated antitrust laws in the operation of its search engine — and called the company “a monopolist.”

News organizations also contend Google abuses its power. But the case is important for other businesses as well. Consider that the internet offers many examples of two-sided markets: A consumer can buy a wrench and a silk blouse on the same website. Another dotcom connects businesses with potential employees. Still another upends the taxi business by linking people who need a ride with drivers.

Beyond Silicon Valley, legal and economics experts follow Google’s case, along with a handful of other legal challenges involving the tech industry.

“These cases are going to set the landscape going forward on what we do about antitrust in tech companies,” Albrecht, of the International Center for Law and Economics, said. “They are especially important because of how big a role tech is playing right now and how big a role we expect it to play in the future.”