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An Antitrust Analysis of GOOG-DCLK Deal: Search Ads Vs Contextual Ads Vs Display Ads

A research paper from the AEI-Brookings Joint Center for Regulatory Studies, which builds the case that Google’s (NSDQ: GOOG) buyout of DoubleClick may exceed the limit in terms of concentration of power in online advertising industry, and the concentration of the market would be above the federal government’s warning level. This is of course one side of the story, being pushed by opponents of the merger, and this paper is being pushed by Microsoft (NSDQ: MSFT) and AT&T (NYSE: T) (“AT&T and Microsoft provided support for this research”, it says) as the previous post we did mentions.

Two sides of the anti-trust argument, as outlined by the paper:
— Proponents of this acquisition argue that Google and DoubleClick do not compete–that is, buyers of search-based or contextual-based advertising (the two ad channels in which Google participates) do not perceive graphic-based ads (the ad channel in which DoubleClick participates) to be substitutes. Thus, they conclude that the proposed acquisition would not lead to higher prices.

— According to the Federal Trade Commission and Department of Justice Horizontal Merger Guidelines, product markets are defined by the response of buyers to relative changes in prices. To inform how buyers–in this case, online advertisers–would respond to relative changes in price across the three online advertising channels (search, contextual, and display), the paper analyze the results of a survey of online retailers. The survey suggests that (1) a significant share of online advertisers would substitute among the three channels in response to relative changes in prices, and (2) a significant share of DoubleClick customers would turn to Google before any other supplier in response to an increase in the price of DoubleClick