Background

In July, Microsoft and Yahoo announced a 10-year deal where:

  • Microsoft’s Bing will be the search engine on all Yahoo sites and
  • Yahoo will provide the relationship sales force for both companies’ premium search advertisers.

The aim of the deal is to combine both companies’ complementary strengths and search platforms to create a market competitor able to compete against Google, the market leader in the internet search engine and search advertising markets.

The antitrust issues

This deal raises numerous issues but the precise details of the proposed structure remain a little unclear.

If, as seems likely, it is viewed as a merger of the respective on-line search and advertising businesses, it will be a typical example of a “three to two” merger involving the combination of the number two and three players in a market to counterbalance the presence of a dominant market leader. In this particular case, Google’s market share in the search advertising market is over 77 per cent in the US and over 90 per cent in Europe. The merger could create a stronger competitor, better equipped to compete against Google. However, it would also reduce the number of market players to two, creating a duopoly, which could limit consumer choices in the long term, reduce choice for advertisers and potentially reduce competitive incentives in the market.

What next?

It is reported that the parties are currently in informal discussions with the Commission (having already started the formal process in the US) and one would expect a notification and a formal investigation to follow shortly.