Threat of Antitrust Challenge Leads Yahoo! and Google to Abandon Ad Agreement

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In light of a threatened antitrust challenge, search engine companies Yahoo! Inc. and Google Inc. abandoned an advertising agreement that would have given Yahoo! the option of using Google to provide ads on its websites and its publisher partners' sites.

The Department of Justice Antitrust Division issued a statement today, saying that the agreement “likely would have denied consumers the benefits of competition—lower prices, better service, and greater innovation.”

“The companies’ decision to abandon their agreement eliminates the competitive concerns identified during our investigation and eliminates the need to file an enforcement action,” said Thomas O. Barnett, Assistant Attorney General in charge of the Antitrust Division.

Advertising Agreement

The advertising agreement was announced in June. At that time, Google and Yahoo! said that that they would voluntarily agree to delay implementation pending Department of Justice review of the arrangement, even though regulatory approval was not required.

Google contended that the non-exclusive advertising agreement, which would have provided Yahoo! with access to Google’s AdSense advertising programs on their U.S. and Canadian websites, would in fact strengthen Yahoo!

Google also claimed that neither Google nor Yahoo! set ad prices and that prices would continue to be set by competitive auction. Google said that the deal was “similar to other standard business practices where competitors share components.”

Reduction of Competitive Rivalry

As a result of its investigation, the Justice Department concluded that “Google and Yahoo! would have become collaborators rather than competitors for a significant portion of their search advertising businesses, materially reducing important competitive rivalry between the two companies.” The government said that the companies suggested modifications to address antitrust concerns but that the proposed fixes were not sufficient to eliminate those concerns.

Relevant Markets for Impact on Competition

The Justice Department identified two relevant markets for considering the agreement’s impact on competition: (1) Internet search advertising and (2) Internet search syndication. Search engines provide listings consisting of so-called “natural” or “algorithmic” results of the search engine’s canvas of the Web, as well as paid or sponsored search advertisements. Google and Yahoo! also offer their search engine and search advertising services to third-party syndication partners, such as Internet Web sites for retail stores and newspapers, according to the Justice Department.

Google has shares of more than 70 percent in both relevant markets, the Justice Department concluded. Yahoo! is Google’s most significant competitor in both markets, with combined market shares of 90 percent and 95 percent in the search advertising and search syndication markets, respectively, according to the government.

Microsoft Criticism of Agreement

Microsoft Corporation, which had unsuccessfully attempted to acquire Yahoo earlier this year, was among the most vocal critics of the agreement. Microsoft Senior Vice President and General Counsel Brad Smith testified before Congress on the deal in July. “If search is the gateway to the Internet, and most believe that it is, this deal will put Google in a position to own that gateway and the information that flows through it,” he said.

There is speculation that Microsoft could make another run for Yahoo! in light of the collapse of the Google/Yahoo! agreement.

The November 5 Department of Justice press release appears here. A statement by Google is posted here.