Microsoft bid for Yahoo is new competition challenge for EU

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If Microsoft's offer to buy Yahoo ends up with an agreement between the boards of the two IT giants, competition authorities around the world will have a new complex Internet issue to deal with in addition to the proposed merger between Google and DoubleClick.

On Friday, Microsoft offered 44.6 billion dollars (30.1 billion euros) for the purchase of Yahoo, the second-biggest search engine worldwide. If the operation goes ahead, it will be one of the top technology deals ever made and will merge two of the three search engine providers with significant global reach.

Google will remain the first global provider and will keep holding the biggest share of revenues for search ads. However, the potential merger would create a competitor able to stifle its growing dominance.

If the deal is signed, the European Commission will be forced to analyse the creation of a duopoly in the already highly-concentrated search engine marketplace.

Against this background, two alternative scenarios are likely to emerge, according to Hans Friederiszick, a former member of the Commission's Chief Competition Economist Team, and currently managing director of the competition analysis section of the Berlin-based European School of Management and Technology (ESMT).

According to Friederiszick, Brussels could either stop the deal on the grounds that it will reduce competition or conversely, it could accept it in order to allow real competition in a market increasingly dominated by one single actor.

"The authorities could take the view that the proposed merger would be pro-competitive by creating an organisation with the strength and clout to vie more effectively with Google for market space," Friederiszick argued.

That would be a decision that Google would not necessarily oppose, as it could in fact allow the world's leading search engine "to argue that its likely dominant position is contested by an equally strong player," commented Friederiszick. Its bid for DoubleClick might also be reviewed against this completely different market landscape (see EurActiv 14/01/2008 and 22/01/2008).

"In any case, one barrier for the proposed merger to get approved may be the relationship between the Commission and Microsoft, following its strategic use and abuse of interoperability," Friederiszick speculated. After having already heavily fined the Seattle company for its anti-competitive behaviour, the European Commission opened a new, wide-reaching investigation in January into the compliance of a series of Microsoft's products with EU competition rules, ranging from the Internet Explorer browser to its email services (see EurActiv 15/01/2008).

Another significant issue raised by the possible new merger is the importance of cooperation between the two most powerful competition authorities, the European Commission and the US Federal Trade Commission. "It would be desirable to see the US and European authorities act with some concord on the proposal, although this is incredibly challenging," Friederiszick said.

While the Google/DoubleClick deal has already been cleared by the FTC, it is still awaiting the green light from Brussels. Similarly, the potential Microsoft/Yahoo merger "is an international business where the competition issues plainly need to be addressed across different jurisdictions, yet the market outcomes and impact in those jurisdictions are very different. Even so, there have been great strides in reaching such a dialogue in recent years," Friederiszick concluded.

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