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Senator urges DOJ to 'closely examine' Google-Yahoo deal

Kohl says proposed online search advertising deal raises several potential antitrust questions

By Heather Havenstein
October 3, 2008 12:00 PM ET

Computerworld - The chairman of the U.S. Senate's antitrust subcommittee is urging the U.S. Department of Justice to closely examine the proposed Google-Yahoo search advertising partnership, noting that it could lead to higher advertising prices and create unfair market conditions.

Sen. Herb Kohl (D-Wis.) yesterday sent a letter to Assistant Attorney General Thomas Barnett describing several potential antitrust issues raised by the proposed deal, under which Yahoo would run Google advertisements alongside its own search results.

Kohl's letter comes amid a firestorm of criticism of the proposed deal, including a report from an antitrust think tank that concluded that the deal could lead to a "black hole that swallows up Yahoo" and a formal call from the Association of National Advertisers to reject the deal.

In his letter to the DOJ, Kohl cited potential higher online advertising prices and the question of whether the deal will strengthen Yahoo or lead to its exit from the market.

The subcommittee's investigation has shown that many advertisers and competitors are concerned about Google's potential to control a dominant share of the search advertising market, Kohl went on to note.

"Many interested parties are also apprehensive that if the transaction is consummated, Yahoo will have less incentive to compete against Google, as it will rely upon its main competitor for a significant increase in its revenue," according to the letter. "Therefore, critics contend that an advertiser will have an incentive to bypass Yahoo entirely and only bid for Google advertisements, since an advertisement purchased with Google could be placed on both Yahoo and Google's search result pages."

If the advertising outsourced by Yahoo to Google grows significantly over time, the threat to competition will also increase, the letter added.

"Recognizing the nascent and fast-changing nature of this marketplace, we encourage the department to continue to monitor the state of competition in this industry, whatever the outcome of its current investigation," the letter said. "If, over time, you determine that Google is gaining a dominant market position as a result of the Google-Yahoo agreement, then we would encourage the Justice Department to intervene to protect competition."

The DOJ has already hired a high-profile litigator to look into a possible antitrust investigation.

Google maintains that the deal would not lead to huge advertising cost increases or provide it with a monopolistic hold on the online search advertising market.

For its part, Yahoo late last month 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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