Self-Bidding in Generalised Second Price Auctions - the Case of the Compliance Mechanism in Google Shopping

In its decision in the case AT.39740 Google Search (Shopping) (``Shopping Decision") the European Commission fined Google EUR 2.42 bn for abusing its dominant position in the general search market by favouring its own comparison shopping service within general search results pages. Following this decision, Google had to end the abusive behaviour and introduced a so-called Compliance Mechanism which allows rival comparison shopping services to bid for spots in the ``Shopping Box" on the general search results page. Google itself also participates as a bidder for these limited spots, thereby acting as bidder and auctioneer at the same time in a Generalized Second Price auction setting. We analyse this Compliance Mechanism and the associated auction mechanism in terms of economic efficiency as well as welfare distribution. We find that the participation of Google in these auctions creates incentives for Google to overbid and thus raises the cost of participating in the auction for competing CSSs. At the same time Google reduces the number of available positions for rivals by (inefficiently) winning positions for itself. The optimal overbidding strategy and the level of market foreclosure depend on market specifics. A necessary condition for our result is for Google to have sufficient market power in the market for general search services, which seems to be satisfied considering the findings in the Shopping Decision