Google-Yahoo Deal Raises Antitrust Fears

Google claims that the deal would strengthen Yahoo, its top competitor. Microsoft disagrees vociferously. (By Paul Sakuma -- Associated Press)

The analogies that Google makes to defend the deal involve deals in industries that aren't as dominated by one player as is the Internet advertising business in the United States, the source said.

"There is a lot at stake here," the source said. "If an advertiser wants to find an audience on the Internet, they have to go to Google."

The debate over the Google-Yahoo alliance takes place as Google, Yahoo and Microsoft struggle for advantage in the search advertising business, a key element for any company wanting to compete in the $40 billion Web advertising market.

Microsoft, the third-ranked search advertising player, is vehemently opposed to Google's alliance with Yahoo. The company had recently sought a similar advertising partnership with Yahoo, in which it would have invested $8 billion in the company.

Microsoft is expected to lobby against approval with the subcommittees and with the Justice Department.

State attorneys general might also be tempted to look into the arrangement, said a source close to Microsoft's thinking.

The source rejected the idea that Google was helping Yahoo "out of the goodness of its heart."

"If the effect of an arrangement is to make the number one more dominant and make the number two more dependent on that dominant [company], then that's bad for competition," said the source, who spoke on condition of anonymity because of the sensitive nature of the Yahoo negotiations.

In a statement Friday, Microsoft said: "Our position has been clear since April that any deal between these two companies will increase prices for advertisers and start to consolidate more than 90 percent of the search advertising market in Google's hands. Legal and industry experts agree that this would clearly make the market less competitive."

David Balto, an antitrust lawyer who was policy director at the Federal Trade Commission during the Clinton administration, said that regulators must struggle with the essential question of whether Yahoo will have an incentive to continue to compete under the deal.

Google says the deal would yield enough money for Yahoo to make it a stronger competitor.

But Microsoft says that the deal would strengthen Google while rendering one of its few remaining U.S. competitors dependent.

"From the perspective of the regulators, it's important to make sure that you have Yahoo as an independent competitor," Balto said.