On 11 March, the European Commission and the Competition and Markets Authority of the United Kingdom announced investigations into a suspicious agreement between Google and Facebook (not yet Meta at that time) in September 2018 related to online advertising. Both agencies believe that the agreement may have breached their respective competition rules on anti-competitive agreements and abuse of dominance.

Jedi Blue Agreement (Google / Facebook)

The agreement in the spotlight was code-named by Google as “Jedi Blue” and may have had a widespread impact on the market, resulting in suboptimal outcomes of bidding processes that match advertisers with online advertisement space (inventory) owners. The agreement was an attempt to halt the development of header bidding solutions. So, in order to understand the negative effects of “Jedi Blue”, we first need to understand header bidding.

Header bidding was developed by publishers and competitors of Google in the ad-tech field to (partially) circumvent Google’s ad exchange gatekeeper position in real-time online auction processes. By running the bidding in the invisible header field of the page opened by viewers, header bidding allows publishers to have more control over the bidding process by inviting multiple ad exchanges to compete for their inventories simultaneously.

As shown in US antitrust documents — quoting Google employees on “fighting off” header bidding —  Google considered header bidding an existential threat. As a result of the rapid increase of header bidding, Google developed its own solution called Open Bidding (based on practically the same idea as header bidding). But it was not enough: header bidding was becoming more popular. When Facebook also considered supporting header bidding solutions, Google responded and offered the agreement code-named “Jedi Blue”.

The agreement provided that Facebook refrain from participating in developing header bidding. In exchange, Google offered advantages to Facebook in auctions via its Open Bidding platform. In essence, Facebook enjoyed some advantages vis-à-vis other advertisers when using Google’s ad-tech platform. Based on the antitrust documents filed in the US, these advantages relate to preferential fees, longer timeouts to bid, direct billing relationships to publishers, more useful user data, and information about which impressions are likely targeted to spam. Google gave Facebook a potentially anti-competitive advantage in the ad-bidding process because none of these advantages were given to other bidders.

Furthermore, Google and Facebook agreed to refrain from fierce competition when bidding together in Open Bidding (note, Google is a bidder and auctioneer simultaneously). This included, among other things, a 10% minimum “win rate” of Facebook in the auctions.

Due to its restrictive nature, “Jedi Blue” may have caused online publishers, advertisers, and consumers significant financial damages. If Facebook had chosen header bidding, the market would likely have been more competitive, and the position of Google in ad-tech might have been challenged. CDC will closely follow the development of these cases.

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