What Is RGSP | Understanding Google’s Randomized Generalized Second-Price Auctions

A detailed look at why the U.S. Department of Justice argues that RGSP makes ad auctions unfair, and why Google claims it improves the user experience.

RGSP (the concept of randomized generalized second-price auctions) shocked the PPC community after it became a focal point in Google’s antitrust trial.

While some digital marketing professionals agree with Google that the practice provides a better user experience, others side with the DOJ, arguing that it undermines fairness in ad auctions and simply helps Google further enrich itself.

But what exactly is RGSP? Why does the Department of Justice see it as problematic for ad auctions? And how does it affect Google’s advertising revenue? Let’s explore these questions.

Dr. Adam Juda, Google’s Vice President of Product Management for Ads Quality Systems, explained at the federal antitrust trial:

• The highest bidder does not automatically win the ad auction.
• Instead, the long-term value (LTV) of their campaign carries greater weight.
• This means Google may sometimes take short-term financial losses.

When advertisers bid on keywords, Google does not determine the winner of the ad auction solely by the bid amount. Instead, it uses a metric called Ad Rank to decide how — and even whether — a campaign will appear in the results.

Ad Rank is a composite score calculated by Google’s algorithms, taking into account:

• The bid amount

• The quality of the ad at auction time (including expected click-through rate, ad relevance, and landing page quality)

• The Ad Rank threshold

• The competitiveness of the auction

• The context of the search query

• The expected impact of extensions and other ad formats

Your Ad Rank is recalculated every time your campaign qualifies to enter an auction. This means that ad rankings can change depending on competition, ad quality, and search context.


Companies that do not meet Google’s minimum Ad Rank threshold are automatically excluded from the auction.

Imagine five advertisers competing in an auction with Ad Rank scores of 80, 50, 30, 10, and 5. For this particular auction, Google requires a minimum Ad Rank threshold of 40 to display ads above the organic search results. This means only the first two campaigns (with scores of 80 and 50) qualify to appear at the top.


In this case, for an ad to appear below the organic search results, Google requires a minimum Ad Rank of 8. This means the campaigns with scores of 30 and 10 meet the requirement and will be shown under the organic listings.


However, the campaign with a score of 5 does not meet either threshold — for placement above or below the organic results — and will therefore be excluded from the auction entirely, as illustrated in the table below.

If the highest bidder automatically won every Google ad auction, there would be a risk of users being shown low-quality ads. Poor-quality ads may be irrelevant to a user’s query, which negatively impacts:

• Click-through rate
• Conversion rate
• User experience

This would reduce the overall value of Google’s advertising platform.

A Google representative explained it this way:

• “Higher-quality ads lead to lower costs and greater advertising success.”
• “Google Ads works best when the ads shown are relevant and closely match the user’s search query.”

It is in Google’s best interest to show high-quality ads that align with user intent, since advertisers pay Google only when someone clicks on the ad, visits the website, or calls the company — in other words, when a clear conversion action takes place.

Without RGSP, ad auctions would not be “well-ordered,” explained Frederick Vallaeys, CEO of Optmyzr. He noted that an ad meeting all of Google’s minimum auction criteria can sometimes still rank below another ad that fails to meet some of those criteria.


Vallaeys went further, providing an example of an ad auction with a predicted CTR threshold of 4%. Details of the competing bids are shown in the table below:

RGSP is a method used by Google that randomly selects the winner of an ad auction from among the top bidders, provided their long-term values (LTV — Google’s calculation, essentially similar to Ad Rank) are close enough.


According to Big Tech on Trial, the top bidder “pays a bid price equal to the next highest bid plus one cent.”


The U.S. Department of Justice argued in federal antitrust court that this practice creates unfair competition among advertisers, since the auction winner should always be the one who submits the highest bid.

Advertisers have two options if they want to avoid having their potentially winning bid randomly downgraded to second place:

• Improve the LTV of their campaign
• Increase their bid amount

The problem is that Google has never explained how advertisers can actually improve their campaign’s LTV. This leaves them with only one real option to avoid RGSP — raising their bids.


To avoid RGSP, a bid must be significantly higher than the second-highest bid. (As noted earlier, winners and runners-up can be swapped under RGSP only if their LTV and bid amounts are close.) As a result, advertisers ended up increasing their bids by as much as 3.7 times, according to This Week in Google Antitrust.

In the example above, Ad 2 meets the threshold because its predicted CTR is 5–1% higher than the 4% required by Google. However, since Ad 1 has a higher score (30), Ad 2 will be ranked lower on the page to preserve auction accuracy and will only be displayed when Ad 1 is allowed.


“This isn’t the best scenario for advertisers or for Google, which is why they address the issue by allowing ads to be shown in an order different from the one normally dictated by Ad Rank,” writes Vallaeys.


This “different order” is what the RGSP concept refers to.

Jay Friedman, CEO of the advertising agency Goodway Group, outlined why RGSP can be problematic for advertisers:

• “Imagine you want to buy a concert ticket. Not everyone can get one, so an auction is held. You place your bid, and it’s not a first-price auction (where the highest bidder wins and pays exactly what they bid) and it’s not even a second-price auction (where the highest bidder wins but pays a nominal amount, for example $1 more than the second-highest bid). Instead, the concert venue runs an RGSP — a randomized generalized second-price auction.”

• “Suppose the top two bidders offered $100 and $95. In an RGSP, the venue selects the top two bidders and, as long as their long-term value to the venue is ‘close enough,’ there’s a chance the auction randomly swaps their positions — giving the ticket to the second-highest bidder. That’s great if you’re the one who gets the ticket for $95, but frustrating if you bid $100.”

• “The catch is that you’re told there are only two ways to ensure you won’t be displaced after bidding the highest price. First, you have to increase your long-term value to the venue. But you’re not told exactly how — only that it may include your behavior, recommendations, bid amounts, bidding frequency, and other quality factors. Pretty vague. The second option is to raise your bid. And as it turns out, you’d need to raise it from $100 to $370 to have enough certainty that your bid won’t be undercut.”

At the federal antitrust trial, the Department of Justice argued that instead of improving ad quality, Google uses RGSP to boost its advertising revenue. To support its case, the DOJ presented an internal email from Adam Juda to his Google team, in which he admitted the company would face challenges convincing advertisers to accept the practice.

An excerpt from the email read:

“If I have to say, ‘We might randomly shut you out if you don’t bid high enough,’ then I’ll have another bad year at Google Marketing Next.”

In court, there was even debate over what Juda meant by including the winking emoji in his message.

Google’s Vice President and General Manager of Ads, Jerry Dischler, testified at the federal antitrust trial that although he was unsure whether RGSP would lead advertisers to raise their bids, he could confirm that the practice does increase Google’s ad revenue.


Dischler told the court that the company “often” modified the auctions it used to sell search ads, raising ad costs and reserve prices by as much as 5% for the average advertiser. For certain queries, the tech giant could even increase prices by up to 10%. However, Google sought “not to inform advertisers of the price changes.”


The Department of Justice presented an email sent by Dischler back in 2018 to highlight the pressure his team faced to hit revenue targets set by Google CFO Ruth Porat on Wall Street. In court documents, he admitted his team was “shaking the cushions” to squeeze out more revenue.


He wrote:

• “If we don’t meet quota for the second quarter in a row and miss the expectations Ruth has set, we’ll get severely punished in the market.”

• “I care about revenue more than most people, but I think we can all agree that for our teams trying to live in expensive neighborhoods, another $100,000 drop in stock price won’t do much for morale — not to mention the massive impact on our sales department.”

Practices like RGSP are not new. In fact, Yahoo! explained in a 2010 interview with The Register that since 2007 it had been using “squashing” and second-price auctions to increase revenue.


At the time, Yahoo!’s chief economist, Preston McAfee (who now works at Google as a Distinguished Scientist), told the publication:

• “When someone has a really high probability of getting a click, they’re very hard to beat, so it’s not a very competitive auction. To keep them from just winning every time, we use squashing. It makes the auction more competitive.”

• “Bidders respond by raising their bids. The one who was destined to lose is suddenly back in the race, so they bid higher to try to displace number one, and number one bids higher to defend their spot.”

• “We can make the competition tougher by applying squashing, even on keywords that don’t attract many bids.”

McAfee did not confirm how aggressively Yahoo! applied squashing but noted that the system was constantly adjusted and “reset.”

Google uses RGSP to prevent bias in which the same winner takes all, Adam Juda testified during the federal antitrust trial. Commenting on the practice, he told the court:


“We swap winners with losers; otherwise Amazon always ends up on top,” Bloomberg reported.


According to Google, another reason for introducing randomness into the auctions is to reduce the pressure on advertisers to constantly adjust their bids out of fear of overbidding.


With RGSP, the price advertisers pay is based on the next highest bid. Juda described this method as “advertiser-friendly.”

• “I’m confident Google is working to make its ad product more effective, at least for retail advertisers, since that was clearly the context of Dischler’s quotes. What I’m not confident about is this being a long-term strategy for success. I have plenty of ideas for how Google could improve for B2B advertisers — if they’re open to a more honest path forward.”

Google Ads expert Kirk Williams wrote:

• “Google, we genuinely love the product you first introduced. We’re the ones who have spent years telling clients why search is one of the greatest marketing channels of all time (the incredible marketing intent behind a search query!!). Stop the cash grab and start rebuilding trust. For the sake of the industry. Please!”

Others, however, argue that “out-of-order” ranking changes could actually help improve user experience. As Vallaeys noted:

• “While out-of-order promotion changes the usual dynamics of an auction, Google believes it ultimately improves search quality — and I tend to agree. For advertisers, this underscores the need to focus both on strategic bidding and on optimizing relevance and quality metrics.”

Content marketer Gautam Verabatini shared his thoughts on LinkedIn:

• “Introducing randomness may help create a more dynamic and less predictable auction environment, preventing rigid deterministic bid rankings that always give the top spot to one player who has mastered every other factor.”

Why all of this matters: fair ad bidding is essential for advertisers to achieve their marketing goals, maintain trust in the ad ecosystem, and build long-term relationships with platforms and publishers. It supports a healthy, competitive market where advertisers can optimize their strategies for the best results.

The RGSP concept appears to have split the paid search community into “two camps,” with many criticizing it for a lack of transparency.

PPC specialist Vincent Norris wrote on LinkedIn:

• “So much for advertiser transparency, right? What does this mean for advertisers? Does Ad Rank even matter anymore? Personally, I hope Google gets more than just a fine and a slap on the wrist for this.”

Mike Ryan, Head of E-commerce Insights at Smarter Ecommerce, commented:

• “Is this ethical behavior? No. Whatever the initial motivation, it’s auction manipulation that seems to harm Google’s competitors while unfairly boosting Google’s revenue by raising costs for everyone else.”

Digital marketing expert Tyler Jordan added:

• “All digital marketers should now understand that Google’s bidding auction is no longer a true auction. Supply and demand still play a role, but we’ve just learned there are other factors at play.”

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