Digital advertising is the economic backbone of much of the Internet. But complaints have recently emerged from a number of quarters alleging the digital advertising market is monopolized by its largest participant: Google. Most significantly, a lawsuit first filed by the State of Texas and 17 other U.S. states in 2020 alleges anticompetitive conduct related to Google’s online display advertising business. Most recently, a group of U.S. senators introduced a bill that would break up Google’s advertising business (as well as that of other large display advertising intermediaries such as Facebook and Amazon).All of these actions rely on a crucial underlying assumption: that Google’s display advertising business enjoys market power in one or more competitively relevant markets. To understand what market power a company has within the market for a given type of digital advertising, it is crucial to evaluate what constitutes the relevant market in which it operates. If the market is defined broadly to include many kinds of online and/or offline advertising, then even complete dominance of a single segment may not be enough to confer market power. On the other hand, if the relevant market is defined narrowly, it may be easier to reach the legal conclusion that market power exists, even in the absence of economic power over price.Determining the economically appropriate market turns importantly on whether advertisers and publishers can switch to other forms of advertising, either online or offline. This includes the specific ad-buying and placement tools that the Texas Complaint alleges exist within distinct antitrust markets—each of which, it claims, is monopolized by Google. The Texas Complaint identifies at least five relevant markets that it alleges Google is monopolizing or attempting to monopolize: publisher ad servers for web display; ad-buying tools for web display; ad exchanges for web display; mediation of in-app ads; and in-app ad networks.As we discuss, however, these market definitions put forth by the Texas Complaint and other critics of Google’s adtech business appear to be overly narrow, and risk finding market dominance where it doesn’t exist.If advertisers faced with higher advertising costs for open-display ads would shift to owned-and-operated display ads or to search ads or to other media altogether—rendering small but significant advertising price increases unprofitable—then these alternatives must be included in the relevant antitrust market. Similarly, if publishers faced with declining open-display ad revenues would quickly shift to alternative such as direct placement of ads or sponsorships, then these alternatives must be included in the relevant market, as well.If advertisers and publishers are faced with a wide range of viable alternatives and the market is broadly defined to include these alternatives, then it is not clear that any single firm can profitably exercise monopoly power—no matter what its market share is in one piece of the broader market. Similarly, it is not clear whether “consumers” (e.g., advertisers, publishers, or users) have suffered any economic harm.With a narrow focus on “open display,” it is quite possible that Google’s dominance can be technically demonstrated. But if, as suggested here, “open display” is really just a small piece of larger relevant market, then any fines and remedies resulting from an erroneously narrow market definition are as likely to raise the cost of business for advertisers, publishers, and intermediaries as they would be to increase competition that benefits market participants
