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News items continue to pile up suggesting that the FTC is likely to challenge Google’s acquisition of mobile application and website advertising provider, AdMob.  See this recent article from the Wall Street Journal.  News reports today contain this quote from an anonymous source:

“The staff (at the U.S. Federal Trade Commission) believes there is a significant competitive problem and they are prepared to make a recommendation to sue,” the person said, speaking on condition of anonymity.

Senator Herb Kohl also opined on the deal this week (having conducted his own thorough economic analysis, of course) and offered his assessment in a letter to the FTC:

Critics of this transaction worry that this deal will allow Google to merge with one of its biggest rival mobile advertising competitors, and leverage its dominance of PC-based search advertising market into the emerging mobile advertising market, particularly with respect to advertising embedded in smart phone applications.  The parties to this transaction argue, on the other hand, that there are ample competitors in the smart phone search and application-based advertising market, and also contend that the market for advertising on mobile devices is too nascent to determine that any transaction will lead to dominance by any one company.

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Without reaching any conclusion as to whether the Google/AdMob transaction would create such dominance or would cause any substantial harm to competition, I believe it is essential that the FTC scrutinize this deal very closely to carefully examine this question.

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The FTC should also pay close attention to the privacy interests implicated by this transaction, as the combined firm will gain access to a treasure trove of data on millions of consumers’ behavior, search and product preferences.    The FTC should assure itself that the deal, if approved, will have sufficient safeguards to protect consumers’ privacy

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Thus the incipiency of the smart phone advertising market is not in itself a reason for the FTC to desist from taking any necessary action to enforce the antitrust laws or protect competition should it determine such action is necessary.

Because the acquisition has already received a second request, and is certainly being carefully assessed by the FTC (and Kohl would never suggest otherwise), I take Kohl’s urging that the FTC “scrutinize this deal very closely” to be the closest he wants to come to publicly telling the FTC to challenge the merger.  Kohl can perhaps be excused for imprecise and antitrust-irrelevant thinking, being a politician and all (even though one in charge of the Senate’s antitrust subcommittee).  But the basic content of Kohl’s letter is perfectly aligned with the claims of the deal’s critics to which he refers.  Unfortunately, there is just no support for the claims being made against the deal, and there is a substantial likelihood that intervention would be in error.

The “Leveraged Dominance” Claim

First of all, neither Kohl’s letter nor the “critics of this transaction” explain what it would mean for Google to “leverage its dominance of [the] PC-based search advertising market into the emerging mobile advertising market, particularly with respect to advertising embedded in smart phone applications,” but it sure sounds scary.  Leveraged dominance. Very bad.  Whatever it means.

If mobile application advertising competes with other forms of advertising offered by Google, then it represents a small fraction of a larger market and this transaction is competitively insignificant.  Moreover, acknowledging that mobile advertising competes with online search advertising does more to expand the size of the relevant market beyond the narrow boundaries it is usually claimed to occupy than it does to increase Google’s share of the combined market (although critics would doubtless argue that the relevant market is still “too concentrated”).  If it is a different market, on the other hand, then critics need to make clear how Google’s “dominance” in the “PC-based search advertising market” actually affects the prospects for competition in this one.  Merely using the words “leverage” and “dominance” to describe the transaction is hardly sufficient.  To the extent that this is just a breathless way of saying Google wants to build its business in a growing market that offers economies of scale and/or scope with its existing business, it’s identifying a feature and not a bug.  If instead it’s meant to refer to some sort of anticompetitive tying or “cross-subsidy” (see below), the claim is speculative and unsupported. Continue Reading…