Yahoo Happily Admits It Manipulates Ad Auctions To Get Advertisers To Bid More

Sometimes you wonder if executives realize what they're saying before opening their mouths at times. In an interview with TheRegister, Yahoo's chief economist appears to happily admit to manipulating ad auction results in order to force advertisers to bid more:

"When someone has a really high ad click probability, they're very hard to beat, so it's not a really competitive auction," McAfee told The Reg. "So that they don't just win [every auction], we do squashing. This makes the auction more competitive.

"It's like handicapping. We handicap the people with the high click probability."

This, McAfee said, can increase Yahoo!'s revenues. "The bidders respond by bidding higher. The one who was destined to lose is now back in the race, so they bid higher trying to displace the number one, and the number one is trying to fend them off so they bid higher too.

"We can make the competition a bit more fierce using squashing, even on keywords where there's not much bidding."

While that may seem like a neat trick from an economics standpoint, it certainly seems like a pretty questionable business practice from an advertisers' standpoint. Having a company secretly manipulate the results of an auction to make participants pay more? That sounds like fraud. As Eric Goldman notes, this appears to be a lawsuit waiting to happen.

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