Of Death Spirals And The Free Market

As a trust-busting kind of guy, I'm embarrassed to admit that I'd never heard of the American Antitrust Institute until today. But there it is, weighing in on the Google-Yahoo advertisement and its implications for competition in the online ad market.

Here's AAI senior fellow Norman Hawker, talking to Sci-TechToday:

"The risk harm to competition in this case is exceptionally great because the agreement has the potential to increase Google's market share to over 90 percent. At that point Google would have the power to dictate prices and other terms to advertisers. Yahoo provides the most significant source of competition to Google in paid search, and the agreement has some potential to strengthen Yahoo as a competitor, but it also poses an enormous risk of either weakening Yahoo's ability to compete or causing Yahoo to exit the market entirely."

Mismanagement and poor corporate strategy also haven't done much to strengthen Yahoo's ability to compete, if you think about it. But since the company is merely a troubled Internet pioneer, and not a failed, criminally greedy Wall Street financial institution, it's not in line for any multibillion-dollar taxpayer-funded bailouts.

Be that as it may, Hawker says Yahoo should be eager to avail itself of some government TLC in the form of antitrust measures:

"Anytime you have a market with only three competitors and the two largest firms enter into an agreement to share resources, the government has a strong case. If Yahoo is sincere about its desire to become a more vigorous competitor, then it should welcome the creation of safeguards that will help prevent it from entering a death spiral where use of Google ads only saps Yahoo's strength in advertising."

An observation: As a rule of thumb, you never want to see your company's name as the subject in a sentence that contains the phrase "death spiral." Bad for morale.

The AAI isn't the only one opposed to the Google-Yahoo deal. From CNBC:

On Monday the World Federation of Advertisers, which represents 55 national advertiser associations, said it asked the European Union to block the partnership, which is expected to launch next month. The deal will only affect North American websites, but the EU is investigating its impact on global competition.

Google CEO Eric Schmidt says they're planning to move forward with the deal in October, even if they haven't yet received DOJ approval. And tomorrow is one of the companies' big deadlines: under the Google-Yahoo agreement submitted to the SEC, the companies gave the DOJ 105 days from June 12th to complete their antitrust review. That would be tomorrow.

Which doesn't mean we'll hear anything tomorrow. Either way, I'd be surprised if Google makes good on Schmidt's vow to move the deal along without some kind of go-ahead from the DoJ. Of course, maybe the feds will be too busy to notice, what with nationalizing our financial industry and all.