Google-Yahoo Ad Deal Favored By Antitrust Group

Sep 23, 2008 (03:09 PM EDT)

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The U.S. government should approve a controversial deal that would have Yahoo carry Google ads on search results, but regulators should also set conditions on the partnership, an antitrust think tank said Tuesday.

The American Antitrust Institute said the partnership makes it more likely that Yahoo would remain independent, which would maintain competition in the market. However, regulators should reshape the alliance between the two Internet companies to foster its benefits to consumers, while also avoiding its anticompetitive risks.

"The pro-competitive potential of the arrangement depends on Yahoo remaining in paid search," Norman Hawker, senior fellow at AAI and a professor at Western Michigan University, said in a statement. "The government cannot compel Yahoo to do this; however, the government can insist on legally enforceable requirements that will ensure that Yahoo has an incentive to continue to develop."

Several provisions that would maintain competition in the ad market during a Google-Yahoo partnership include prohibiting Yahoo from using Google ads on search results outside North America and on third-party Web sites.

In addition, Google and Yahoo should be prohibited from setting minimum prices and Yahoo should be prevented from using Google ads in place of its own, the AAI said. Finally, the two companies should share revenue based on a fixed formula per click, preventing Yahoo from being rewarded with a higher share for using more Google ads.

Google's share of the search advertising market widened in August to 63%, according to ComScore. Yahoo and Microsoft saw their shares drop to 19.6% and 8.3%, respectively.

Google Chief Executive Eric Schmidt told reporters on Sept. 18 at a news conference at the company's Silicon Valley headquarters that Google planned to go ahead with the deal as planned in October, according to a report by Reuters news agency. Schmidt said the company believes it doesn't need government approval to go ahead with the agreement.

In addition, the Google executive said the company believed Microsoft is behind attempts to convince regulators to nix the deal. Antitrust issues have been raised by Google rivals and industry trade groups.