Explain why selling keywords to the highest bidder can lead to an efficient allocation of advertising resources.

With this allocation? method, Google? _______.

A.

increases the demand for advertising on its website

B.

no longer faces a? downward-sloping demand curve

C.

achieves perfect price discrimination

D.

loses its monopoly powers

Is Google Misusing Monopoly Power? ECONOMIC ANALYSIS Google gets its revenue by selling advertisements associ- Figure 3 shows the cc E.U. Slaps Google With New Competition Complaints ated with search keywords. ful strategy. With perl Google sells keywords based on a combination of will- producer surplus is IT The Financial Times ingness-to-pay and the number of clicks an advertise- efficient quantity of s July 14, 2016 ment receives, with bids starting at 5 cents per click. ing ads at prices that Google's regulatory woes in Europe deepened on Thursday as Brussels served the U.S. tech Google has steadily improved its search engine and Google does not app social interest. group with a fresh antitrust complaint and separate new evidence attempting to hone its first refined and simplified its interface with both searchers and advertisers to make searches more powerful and competition case. advertising more effective. 100 . Margrethe Vestager, the E.U's competition commissioner, issued two separate "statements Figure 1 shows Google's extraordinary success in of objections" against the company for misusing its market clout in online advertising and terms of its revenue, cost, and profit shopping, writes Alex Barker in Brussels Google could have provided a basic search engine with none of the features of today's Google "Google has come up with many innovative products that have made a difference to our GO lives. But that doesn't give Google the right to deny other companies the chance to compete If Google had followed this strategy, people seeking information would have used other search engines and Revenue, cost, and profit (billions of do and innovate," said Ms. Vestager. advertisers would have been willing to pay lower prices The advertising charges-covering Google businesses such as AdWords-stem from a long- for Google ads. standing Commission investigation into concerns about Google's contracts with websites to Google would have faced the market described in Fig. 2 20 and earned a small economic profit. which it delivers search ads. Instead, Google improved its search engine and the Brussels also acted on worries that Google restricts advertisers from moving their search effectiveness of advertising. The demand for Google ads 2000 2002 2004 advertising campaigns from AdWords to the platforms of increased. competitors. ... By selling keywords to the highest bidder, Google is able Year to achieve perfect price discrimination. Figure 1 Google's To A spokesperson for Google said: "We believe that our in- ESSENCE OF THE STORY novations and product improvements have increased choice The European Union's competition commis- for European consumers and promote competition. We'll sioner says Google misuses its market power 500 soof in online advertising and shopping. A basic search examine the Commission's renewed cases and provide a angina rsubs in a . 450 detailed response in the coming weeks." One claim is that Google restricts advertisers 400 from moving their search advertising cam- 8 400 Price and cost ( cents per did Ms. Vestager repeated the commission's long-standing ac- paigns from Google Adwords to the platforms Price and cout ( cents per cusation that Google abuses its market position by placing of competitors. 300 300 its own products higher in search results, in areas such as Another claim is that Google abuses its market . small consumer surplus and an online shopping. "We see it happen very, very, very often," position by placing its own online shopping 220 products higher in search results 900 Google's said Ma. Vestager. "This is where we have the strongest producer Surplus evidence." ... Google says its innovations and product improvements increase choice and promote 100+ Copyright Alex Bunker "E.L Slaps Google with New Competition Complaint," Tix competition low profit MR: Fixracial Tro, July 14, 2016 ATC 101 MC 10 10 20 30 40 10 Clicks millions per month) Figure 2 Basic Search Engine Figure 3 Google with A MyLab Economics Economics in the News