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DOJ should investigate Google-Yahoo deal, says think tank

Potential for deal to be 'black hole that swallows up Yahoo' justifies action

By Heather Havenstein
September 23, 2008 12:00 PM ET

Computerworld - The prospect that a Google-Yahoo search advertising deal will end up as a "black hole that swallows up Yahoo" could justify an antitrust injunction, according to a white paper released today by an antitrust think tank.

The proposed partnership could be blocked by the U.S. Justice Department based on Google Inc. and Yahoo Inc.'s combined share of the search advertising market, the lack of new entrants into the market and the absence of market efficiencies being created by the deal, said nonprofit American Antitrust Institute (AAI).

"With a U.S. market share approaching 70% to 80% depending on how the market is defined, Google would already be considered a near-monopolist under traditional antitrust standards, and the combined market share of Google and Yahoo would likely exceed 90%," the report said. "The loss of an innovative competitor in the extraordinarily concentrated market would surely have anticompetitive effects for advertisers that would undoubtedly ripple into other online advertising markets to the detriment of content providers, advertisers and consumers generally."

AAI said the agreement itself, and the potential that Yahoo would exit the paid search business to rely on its partner should prompt the government to view the agreement as "inherently suspect."

The group suggests that government agencies insist that any agreement legally ensure that Yahoo continue to develop and operate its search business.

Legally enforceable restrictions suggested by the think tank would do the following:

  • Prohibit Yahoo from using Google ads on organic search results outside North America and on third-party Web sites.
  • Prohibit Google and Yahoo from setting minimum bid or reserve prices.
  • Prohibit Yahoo from using Google ads when Yahoo has a sufficient number of ads of its own.

"The government should insist on a consent decree which preserves Yahoo's incentives to remain in the paid search market," the white paper went on to note. "If such a consent decree cannot be achieved, then the government should seek an injunction to prevent Google and Yahoo from implementing their agreement."

Google and Yahoo have faced a storm of criticism over the proposed deal, which would have Yahoo running advertising from Google alongside Yahoo search results. The proposed Google-Yahoo partnership has come under fire from major advertiser groups and has prompted the U.S. Department of Justice to hire a high-profile litigator to look into possible antitrust issues.

Google in recent days stepped up its defense of the partnership as criticism mounted that it would result in Google having a monopolistic hold on online advertising. Google maintains that the deal would not result in huge advertising cost increases or lead to a monopolistic hold on the online search advertising market.

For its part, Yahoo earlier today launched a new digital advisory council to help it answer some of the questions that its advertisers have concerning the proposed deal.

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