Advertisers should speak up on where Yahoo assets should be
The problem of anti-trustness
When thinking about the Google Yahoo deal and why we felt it was out and out anti-trust, we were reminded of an old joke. When it was told to us years ago it was about an accountant, but the punchline was the same.
In the accounting version of the joke when the successful accountant was asked what one and one made, he replied “What would you like it to be?” Defining anti-trust is much the same, “What would you like it to be?”
Competition law in most parts of the world is made up of three key elements: first you cannot do anything that restricts free trade like create a price fixing cartel; secondly you cannot use one monopoly to create or subsidize another; and thirdly some form of market supervisor must inspect all mergers and acquisitions so that new monopolies are not formed with the intention of carrying out items one and two.
So it seems pretty clear that if one company has more than 50 per cent market share in a market or major submarket, in this case search advertising in the USA, and it wants to merge with the second largest player in the market, it has to be anti-trust. Because that is a transaction which will “create” a more secure monopoly from an existing one.
The principles of anti-trust can be best detected if the answer to any of the following questions is yes:
Is the contemplated action going to create a monopoly where there was none before?
Is one of the parties dominant in a market area and is the contemplated action going to make it more dominant?
Is it possible that the dominance either already enjoyed, or which would be enjoyed after the contemplated transaction, is likely to lead to one company controlling market pricing? Ditto diminishing competition. Will dominance in this market allow the company dominance in related markets?
The key thing for people to understand is that it is alright for a company to have a bigger market share than anyone else, as is true in PC operating software, but it is not alright for a financial transaction to create this situation. It has to come about by market performance, and it is subsequently then not alright to abuse this dominance by making sure that retailers can only stock your product to the exclusion of the minor rivals.
We have sympathy with Microsoft, which was upset that its server software was considered dominant by the European Commission when it only had a 30 per cent market share, but there were a number of ingredients to this situation. It had dominance in PCs, and was keeping secret special integration tricks between the PC (where it had over 90 per cent software market share) and server side software. In fact it had rapidly amassed that 30 per cent market share because of this dominance, so it had already abused a dominant position to get as far as it had.
No one right now is saying that Google has yet abused its dominant position in search advertising, only that a transaction would artificially create further dominance and control over a huge amount of advertising inventory.
In the end Google would have been in a position to use Yahoo’s advertising in order to offer bigger and better discounts for key clients, and more importantly it could include it all in the same auctioning process which tends to make people pay more for advertising, so it can be thought of as a form of price control. Google can, and does argue that it cannot be anti-trust to let the market decide what to pay for advertising, but by not having a price list, it is extracting more from the market that the market really wants to pay.