Wednesday, August 10, 2016

Bid Rigging in Online Search Markets

The FTC recently filed a complaint against 1-800 Contacts in which it alleges the company's contracts with competitors harmed the market for online searches. The company claims it was merely protecting its trademark.

In online search markets, advertisers can bid for search terms so that their ads will be displayed when a user searches the term. Competitors of 1-800 Contacts would bid on "1-800-Contacts" in order to entice consumers to possibly better terms. 1-800 Contacts claimed this violated the use of its trademarked name and entered into agreements with most competitors to stop them from bidding on their name. This is alleged to have lowered the cost of 1-800 Contacts buying these search terms. It likely also softened competition between contact lens providers.

1 comment:

  1. Because Google advertising is sold based on second-price auctions the fact 1-800 Contacts sought to limit their competition for these advertising articles would be a violation of anti-trust laws in the US. It is also interesting that so many of their competitors were willing to enter agreements just to prevent costly litigation and court issues based on a trademark violation of a telephone number. Through such agreements, they could guarantee their bid would either the only, or nearly the only bid which would guarantee them price setting for the purchase of this advertising space. It is clear if 1-800 Contacts truly performed as the FTC charges they were indeed bid rigging to ensure a more favorable bid structure for themselves. This in turn affects the ability of free competition between the companies, because without the ability to obtain competitors sites through searches purchases cannot confirm with absolute certainty which online seller offers the lowest prices. So, the company, through labeling their brand as a trademark would be successfully able to manipulate the free market. By lowering advertising costs, and potentially increasing sales prices, they were creating the perfect bubble with which to operate. However, it is known that as much as companies like to operate in such an environment, the government and regulators will always find them.