Google-DoubleClick Merger Raises Competitive Issues: Antitrust Institute

This posting was written by John W. Arden.

Google’s acquisition of DoubleClick, which is being reviewed by the Federal Trade Commission and the European Commission, “raises serious competitive issues under several different antitrust theories,” the American Antitrust Institute (AAI) stated in a white paper issued on November 6.

In addition to being the dominant Internet search engine, Google is the leading seller of online advertising in the world, having sold $10.5 billion of advertising in 2006. DoubleClick is the leading provider of “ad serving services”—tools for display ads for Internet publishers, advertisers, and ad agencies. Its revenues reached approximately $300 million in 2006.

Direct Competition

Although Google claims that it doesn’t compete with DoubleClick, AAI notes that both firms have recently introduced products that are direct competitors. DoubleClick’s new Advertising Exchange competes for publishers’ ad space against Google’s AdSense, according to the Institute. In addition, Google is in the process of introducing an ad serving product that competes against DoubleClick’s DART for Publishers.

“The most troubling aspect of this merger from a competition point of view is that it short circuits what otherwise was shaping up to be a healthy competition between two market-leading firms in each other’s core markets,” said Richard Brunell, AAI’s director of legal advocacy and the author of the white paper.

Indirect Competition

In addition to the direct competition between the new products, the two merging companies indirectly compete in offering alternative solutions for publishers to monetize their “white space,” according to the AAI. “Google’s contextual-based text ads and DoubleClick’s profiling-based display ads are different techniques for targeting ads to consumers, which many advertisers apparently see as substitutes.”

Vertical Competitive Concerns

The merger’s integration of search, contextual, and display advertising “may have exclusionary effects if advertisers using rival search engines or advertisers tools cannot replicate the benefits of such integration,” in the AAI’s view.

Moreover, the merger raises the question of whether Google might use competitively-sensitive information that DoubleClick obtains from publishers about their advertising programs or from advertisers about their campaigns to gain a competitive advantage for Google’s search or AdSense offerings.”

Any of these possibilities may have the effect of foreclosing online advertising competitors from the market.

Relevant Market

In addition to describing competitive concerns, the paper asks the fundamental question: “Is online advertising a relevant antitrust market?” If online advertising is not a market separate from other forms of advertising (television, radio, print, billboards), the merger would not raise antitrust issues, since online advertising is only a very small part of overall advertising.

“The available evidence suggests that online advertising is sufficiently distinct that a monopolist in the sale of online advertising would be able to increase prices a small but significant amount without losing so many sales to offline sources to make the price increase unprofitable,” the white paper said.

Online advertising offers features—such as targeting, performance-based pricing, and measurability—that other types of advertising cannot match, said the AAI.

Conclusion

The AAI writes that “there is a good argument that Google and Double-Click are horizontal competitors in two relevant markets”—the market for distributing or brokering online advertising space of third-party web sites and the market for publisher “ad serving tools.”

Text of a news release and the white paper appear on the American Antitrust Institute’s website. The AAI is an independent non-profit education, research, and advocacy organization, based in Washington, D.C.