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Comment by junon | Hacker News Reader

I'm not understanding this, how can it be fraud? (Genuine question, I'm not insinuating anything.)

I don’t think the point is that it’s fraudulent, remember that this is in the context of the antitrust trial. I think the point here is that they could only do that since they have a monopoly.

Though I’m not sure I even agree with that. It burns advertiser’s goodwill for sure, but they advertise on Google because it provides them with a ROI, not because there is no where else. This just forces them to tweak their bids more.

That’s without weighing in on whether Google has an illegal monopoly on search

Something can be both fraudulent and an antitrust issue. In fact there is probably a specific type of fraud which is just this (at least in the UK), which is "Fraud by abuse of position"

The UK legal definition of this would be met if a person/company:

1. occupies a position in which he was expected to safeguard, or not to act against, the financial interests of another person (e.g. operates an auction to tender their online marketing spend?)

2. abused that position (e.g. by putting in fake bids, which only they could do because of their position?)

3. dishonestly (e.g. intentionally failed to disclose or was otherwise intentionally dishonest)

4. intending by that abuse to make a gain/cause a loss (e.g. they intended to raise profits)

The abuse may consist of an omission rather than an act (e.g. number 3 can be a failure to disclose).

Winner expects to pay runner-up bid (this is a very important piece, because this changes the behaviour of bidders). Google quotes them an incorrect bid in order to collect more.

Ahhh okay, that's the part I was missing. Thanks.

The allegation is that Google profited from lying, which is the definition of fraud. They stole, by making someone pay more than they otherwise would have, through deception. If the deal was “you pay what you bid” then this would be fine, but that was not the deal.(To be clear, I have no idea what the deal was, I’m just explaining the OP)

Exactly this. You can end up with some weird situations. I saw one guy get a criminal conviction for this: he repaired elevators. He left RepairCorp where he worked and set up on his own. BuildingCorp continued to pay him for their repairs not realizing it wasn't RepairCorp. In the trial they stated that they were always very happy with his work and the price was identical to RepairCorp. They were pissed he had lied to them though, and the guy ended up getting convicted for fraud.

I'm aware of what fraud is, I just didn't understand based on the parent comments what fraud was being committed (what lies were told, etc). I didn't pick up on the fact that Google was advertising paying the runner-up bid plus a penny but then marking up the runner-up bid substantially.

But that's not what the witness expert claims. He said "squashing".

Google used a second price auction, and also it ranked ads in the auction by bid multiplied by click through rate. Squashing is something like ranking ads by (bid * power(ctr, gamma)) where 0 < gamma < 1. In auctions where the 3rd bid (or lower) wins under the (bid * ctr) rank switching to squashing may increase revenue, because the actually higher bid will win the auction.

I meant that if they claimed that the winner would pay the runner-up bid plus a penny, and then the winner actually paid the runner-up bid plus a percentage, plus a penny, then that would be fraudulent (assuming it was not disclosed).

I have the same question too, say on ebay if I bid for something for a $1.00 but the second highest bidder was $.80, would i pay the $1.00 or $.80? (Its been a long long time I used ebay or did any bidding)

You'd pay $.80 plus minimum overbid amount - so $.81 or $0.85 or sth like that.

From memory, $1 is your maximum bid, your actual cost would be $.81 (or whatever the increment is over 2nd place).

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