In Google's commentary about their ad deal with Yahoo! they wrote:
This does not let Google raise prices for advertisers. Google does not set the prices manually for ads; rather, advertisers themselves determine prices through an ongoing competitive auction. We have found over years of research that an auction is by far the most efficient way to price search advertising and have no intention of changing that.
Aspects of that statement are categorically untrue, perhaps even lies. In many competitive markets with lots of participants the ad market may set ad price minimums, but Google...
- publicly talks about how they tweak the number of ads they display to maximize revenues
- uses quality scores that allow them to give friendly businesses discounts
- Google not only favors its own ads, but also creates custom ad units that only it can buy
Abitrary Pricing Floors
Google has articles in the media talking about how they tweak dials to optimize revenues. While many competitors have increased the number of ads they show, Google has been showing ads across a smaller portion of their search queries, as shown via this comScore data.
If you do not pay Google enough they simply will not show your ads, even if there are no competitors. I have ads where I am the only bidder and I get a 17% clickthrough rate - and yet there is a 17 cent price on those clicks, rather than a true market floor. Bid too low and your ads simply do not show up - even if you are bidding against nobody.
Getting your account Google slapped is a well known phrase amongst many affiliate marketers. One day your ads are going great, and then the next day every keyword has a minimum bid of $5 or $10 per click.
On the flip side of that, many click arbitrage based business models are only profitable *because* a publisher gained access to a high authority trusted Google partner which allowed cheaper ad prices for the same keywords & ad units.
Google has went as far as publishing information about the types of business models that they do not like. Unlike acceptable business models like reverse billing fraud and infidelity, selling ebooks on sites with ads might merit a low landing page quality score.
Google Only Ad Units
Google products are advertised aggressively across Google's content network. Given that internal Google product benefit from brand awareness, bidding with funny money, and cheaper ad prices (since they don't have to give Google a cut) others with similar business models can not compete.
When Google recently entered the mortgage lead market they gave themselves an ad title of 49 characters, and a dropdown that is not available to other advertisers.
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