1. Finance: the simultaneous purchase and sale of the same securities, commodities, or foeign exhange in different markets.
2. Archaic: arbitration
3. Finance: to engage in arbitrage [Wha? The definition of arbitrage is to engage in arbitrage?]

Most people know arbitrage by its pejorative name of "middle man." Most industries have good years and bad years and some are more predictable than others. Farm output is regulated by acts of God as much as it is by sowing certain crops. Cars are faddish and what sells this year might not sell next year. Guys who do arbitrage might build a grain silo and buy wheat in a year of plenty while hoping to sell it in a year of need or buy up Ford's current POS on the cheap in the hope of selling it to a rental company when consumer's rental car purchases change. The ultimate in arbitrage is in buying and selling stock in companies that do abitrage: why bet on building grain silos when you can bet on the price of companies that build grain silos.

Each step away from actual physical production of a good is a "derivative.". Each step away carries an additional level of risk. Middle men who buld silos go into long term contracts with farmers promising the same price over many years despite drought or rain. Hedge funds (derivatives of derivatives) bet on the silo builders being slightly right or slightly wrong. At each step up the ladder the risks and rewards are less predictable.

Until today I had no idea that there was an arbitrage market for google. You can pay google to list your ads on their search results page [AdWords]. You can get paid by google if people click on the ads on your website [AdSense]. There is a class of people who pay for Adwords hoping more people will click through to their site and then click through to another site via google AdSense. Neat trick.

I can understand why google is cracking down on websites that just buy google ads in order to sell google ads. The arbitragers don't add content they just funnel google users to the same destinations as google would but with some additional clicks and by showing google ads more prominently than google itself would do.

Cheesy? sure. Exploitave? maybe. The geek in me is offended but the economist in me says that google displays paid results less prominently than the (possibly ignornant) public values them. It is google's site and they can do whatever they want to do. Google is willing to spend extra time policing buyers and sellers in order to promote the google brand: fine. What is way fun is the fact that google is willing to burn money (as evidenced by the fact that there is an arbitrage market) to do it[2].

[1] 1996 edition. As an undergrad I asked for a second hand copy for Christmas (I grew up with a 1948 Websters and got used to it) but this is what I got.

[2] I like google plenty and while I don't have any friends at google I do have lots of acquaintances.