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This not necessarily the case. Most advertisers will have fixed budgets to spend on AdSense.

Under this assumption banning a publisher would not diminish the revenue stream but just diverting the ads to other not yet banned publishers.

That doesn't mean the scheme as described is true, but it's not as obviously stupid as your first paragraph makes it seem.

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Also obviously if Google reduces the pool of adsense publishers, the money is more likely to be spent advertising on Google properties, and Google will take 100% of that, rather than 32%.

If that was an ideal strategy they would have never opened it up to publishers in the first place.

Google no doubt optimizes their algorithms for profit, but they surely don't need to block out publishers to ensure their own sites have ads to display.

Ad inventory supply is and always will be > demand. As such, their actions to make short-term revenue by banning publishers makes sense. It's basically recycling publishers, knowing the pubs wont be able to do anything about it. Obviously it hurts their brand but they're too big to give a shit.

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