Hahn and Singer Analyze Competitive Effects of Google-DoubleClick Deal

September 26, 2007

The AEI-Brookings Joint Center for Regulatory Studies just released an antitrust analysis of Google’s proposed acquisition of DoubleClick. The paper, authored by Robert Hahn and Hal Singer, examines economic evidence and presents new survey evidence. The authors conclude that prices of advertiser tools could go up significantly if Google acquires DoubleClick, which could harm online advertisers and ultimately consumers.

The study represents the first analysis in the public domain to take a quantitative look at the merger’s impact.

To determine the likely price effects of the merger, the paper examined a survey of online advertisers. Among the survey’s findings:

	69 percent of respondents would decrease their use of DoubleClick advertiser tools if the price of DoubleClick advertiser tools increased by 10 percent; 41 percent indicated they would increase their purchases from a rival graphics firm; 19 percent would increase their purchases from suppliers of contextual ads; and 9 percent would increase their purchases from search-based advertisers.
	Of those respondents who indicated they would purchase more text ads on publisher websites, 62 percent would first consider Google AdSense vs. 19 percent each for Microsoft Adcenter and the Yahoo Publisher Network.
	Of those respondents who indicated they would shift some expenditures to search-based advertising, 67 percent said they would first consider Google.com vs. 17 percent each for Yahoo.com and MSN.com.
	Thus, Google would retain almost 18 percent of the DoubleClick customers who reallocate a portion of their spending to a rival supplier of Internet advertising.

Based on the survey evidence of DoubleClick customers who would substitute to Google, one can reasonably infer that a combined Google-DoubleClick would have greater incentive to increase the price of DoubleClick’s advertiser tools relative to a standalone DoubleClick.

While some proponents of the acquisition argue that Google does not compete with DoubleClick, the survey data appears to undermine that argument. "In particular, the data show that a large percentage of search and contextual advertising customers would substitute to graphic ads in response to a relative change in prices, indicating that consumers perceive those alternative online advertising channels to be substitutes."

Hahn and Singer conclude that the "FTC needs to take a careful look at this acquisition. Given the potential for advertiser harm, the merging parties bear the burden of demonstrating offsetting efficiencies or significant entry by suppliers of advertiser tools in a market with high entry barriers."

Robert W. Hahn is executive director of the AEI-Brookings Joint Center for Regulatory Studies. Hal J. Singer is president of Criterion Economics.

To read their article in full, click here.