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Think Tank: GOOHOO Deal May Be A "Black Hole"

A Washington think tank devoted to antitrust issues has issued a 19-page analysis of the Google-Yahoo deal that warns that the transaction has the potential to become "a black hole that swallows up Yahoo."

"We believe that the transaction could be blocked on antitrust grounds," according to the report by the American Antitrust Institute, which conducted its analysis based on briefings with the companies and publicly available data.

Under the deal announced on June 12, Google would provide some of the ads for Yahoo's search engine, yielding as much as $800 million annually for Yahoo. Yahoo says it will pour that money into improving its own search engine -- in other words, partnering with Google to get more competitive with Google.

But by linking the first and second most popular Web search engines, the proposal has raised fears that it will reduce competition in Web advertising.

The companies delayed implementation of the deal until Sept. 25 to give the U.S. Justice Department time to review the alliance.

The AAI said that in a restricted form the arrangement could work for consumers. But overall the AAI report was skeptical of the claim that the agreement between Yahoo and Google would make them more competitive.

"It strains credulity to believe that Google would agree to an arrangement that gives its chief rival $800 million to invest in efforts that would, if successful, reduce Google's market power," the white paper, by Norman Hawkes, Western Michigan University professor said. The paper was approved by the AAI board of directors.

By Peter Whoriskey  |  September 23, 2008; 2:35 PM ET  | Category:  Peter Whoriskey
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