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Does Google set prices?

So we asked the larger questions. Given what we do know about AdWords, is it really an auction? Given that Yahoo!'s Panama mimics the AdWords setup — and given the added wrinkle of something like squashing — is it an auction? At what point do these complex online auctions cease to be auctions?

He didn't answer these questions directly. "The way we tend to think about this is a little bit different," he said. "We're often trying to juggle many different objectives: make money, help user, deliver value to advertisers. That leads to complex systems. That's not necessarily fatal to the system. If I'm a search advertiser, I can change my bid a little and assess what happens. The system can give optimization tools that will help [advertisers] make sensible choices.

"The American economy is an immensely complex object...But does that mean you can't achieve an effective life in the system? Not necessarily."

A sensible answer. But it doesn't get to the heart of the antitrust issue. So we asked point blank: Does Google set prices?

"I think it's substantially true that they don't set prices. Yes, they have a reserve price, but that has a minor effect on the overall volume of commerce...I buy that argument. They don't substantially set prices. Could they? Maybe. But they don't." Then he paused. "Transparency would obviously help," he added.

What McAfee does say that ultimately Google — and Yahoo! — benefit more from competition among bidders than from straight price settings. The competitive bidding is what makes AdWords so successful. "They could be cheating in some sense and we would have a hard time knowing it because they're so opaque," he said. "[But] if I could have two bidders or one bidder and a reserve price, I'd be better off with two bidders.

"Am I standing up and swearing in court? No."

But perhaps one day he will. ®

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