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Trent

Actually, it is neither Google nor the advertisers who suffer. Advertisers adjust down the price they are willing to pay per click, so that their total expenditure is comparable for what they would like to pay for only legitimate clicks. Google gets a discounted rate on each click, but is also paid for the fraudulent clicks so it comes out even as well.

So who pays? The honest content providers who get a lower cost per click but no advantage from the fraudulent ones.

Perhaps if Yahoo or MSN had a more efficient way of eluding fraud the honest content providers would shift to their ad systems to earn the higher payment per click that should result, which in turn would act as the enforcement arm to encourage Google to be more vigilant.

toby

I'll have to agree with Trent here, the problem is the same as the "lemons" problem. Unless you can correct information asymmetry, the market can collapse.

I wrote a piece about Adsense and lemons here:
http://blog.kiwitobes.com/77

Reinhard

Very intelligent comments by all of you, and I especially like the lemon story. I first totally agreed with Joe in the Google case, that the market adjusts and Google shareholders would be ultimately hurt. After reading your other comments, I agree that others could be hurt, too. All that Joe says is that someone must get hurt, since some people are "useless" sitting around and either clicking or programming robots, and that's not good for anyone! Somewhat agreeing with the previous poster, content providers and advertisers could both get hurt, simply because the spread goes up. (Same as when a penny stock has a bid/ask of $1.00/$1.30, and a market maker profits). And the liquidity drops (=Google's revenue). I totally agree with the Federal Reserve statement too, since I thought of that many times. Yes, the market can adjust, but it hasn't yet at the time the government makes the decision, and even after that it can't quickly. Say, they announce to double the money supply tomorrow. Savers will get hurt, borrowers rewarded. It is unlikely that we all had the same debt to income ratio, or even impossible since retirees and working people are just in an inherently inexchangeable situations.

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