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Money flows from product companies to ad companies to owners of ad space, such as radio, website, tv, movies, billboards, sports teams, apps, etc.

Always has been the case. Ever heard of Lamar? They are one of the largest ad products companies which almost exclusively provides physical ad space.

[1]http://www.lamar.com/

There's nothing sinister here. Just large margins that can accomodate silly spending. But the margins are driven by justly earned efficiencies.

Are there other examples of this happening, or is it just an isolated thing with Google?

At one point, a lot of mobile game companies (which make money from advertising) bought up advertising space to advertise themselves - This is not as bad though because money flows from advertising to advertising but it's still weird.

Not necessarily; it's just arbitrage. If they can get cheap advertising and it converts well, then selling more expensive ads would make sense.