The recently announced proposed acquisition of DoubleClick by Google has caused Microsoft to note its concerns about privacy and the possibility of anti-competitive results in online advertising. Microsoft has two primary concerns: (1) potential market domination by the new entity and (2) privacy concerns. We address the antitrust issues.
When thinking about antitrust issues, there are several basic factors to keep in mind. First, the firm or firms attempting to merge or purchase a competitor in the marketplace must typically show that the eventual entity will not become so dominant in the marketplace that it would be able to overcome all other competitors. This is an obvious concern. “Dominance” would include substantial control of the supply chain, the ability to “price out” competitors by taking short term losses (with the eventual goal of raising prices to recoup the losses) and similar (usually pricing) controls.
On the other hand, there are certain factors that may assist firms attempting to consummate proposed acquisitions or mergers.
If the combining firms can show that there are substantial opportunities for competitors to enter the marketplace, it weighs in favor of allowing the merger. Furthermore, a finding that there is no “direct” competition weighs in favor of the merger. For example, if DoubleClick only offered banner advertisements on third party sites and Google only offered text advertising via search engine results, this would weigh in favor of allowing the merger to complete, because neither of the two firms offer the exact same “product” as the other. Finally, “alternatives in the marketplace,” that is, somewhere else that consumers may go to find similar services, weigh in favor of allowing an acquisition to proceed.
Applying the factors suggests that Microsoft may have a tough time convincing regulators to intervene.
First, while Google and DoubleClick are unquestionably leaders in the field, the Internet is a very big place. There are thousands of places to advertise, such as Microsoft’s own MSN, competing search engines, various specialized portals and more. These other places are unquestionably less popular than the acquirer and acquiree but are perfectly legitimate marketplace options.
Second, and most importantly, is the fact that there are very few barriers to entry. Virtually anyone in the world can get a website up and running with about two hours and $20. While such a site may not be the most imposing competition to the Google and DoubleClick behemoth, it could very well compete in a specialized way and eventually grow to be competitive with a good business model and a little elbow grease.
Third, Internet advertising has numerous market alternatives. There is e-mail advertising, television advertising, print advertising, and numerous other advertising outlets. Indeed, it is harder and harder to find a place in the world where consumers are not bombarded by advertising.
Bottom Line: The fact that there is ample current competition, additional possible competition, and numerous marketplace alternatives means that any attempts by the new entity to raise prices would be very short-lived and ineffective. Consumers have many choices. The competition and market alternatives will comfortably prevent any attempts to dominate Internet advertising. Unfortunately for Microsoft, the analysis suggests that there will be few regulatory concerns about Google’s proposed acquisition of DoubleClick.