Microsoft’s audacious $44.6bn bid for Yahoo could fall foul of European competition law, according to a competition consultancy.
Microsoft on Friday launched an offer to acquire MSN-rival Yahoo! in a cash and share bid of $44.6bn, following some poor results from Yahoo and a desire by Microsoft to better attack its nemesis, Google.
But according to Dr Hans Friederiszick, managing director of ESMT Competition Analysis, This merger will reduce the number of search engine providers with significant global reach from three to two, paving the way for a tight duopoly in these markets. As such, the EC competition authority is right to carefully scrutinize ongoing mergers in this industry.
Friederiszick, who works for the competition arm of the Berlin-based international business school, has recently helped in the assessment of the Google-DoubleClick merger.
As for the Microsoft-Yahoo deal, Friederiszick said, This is a two-pronged issue of competition and privacy and will be treated as such by the competition and regulatory authorities both in Europe and the US. Competition issues will focus on the question of whether this will encourage unilateral price increases for internet advertising via search engines given the already high level of concentration in this market.
This merger is anything but clear cut, said Friederiszick. Whilst the search-engine marketplace is highly concentrated, the authorities could take the view that the proposed merger would in fact be pro-competitive by creating an organization with the strength and clout to vie more effectively with Google for market space. In turn, Google may welcome this move as it allows Google to argue that its likely dominant position is contested by an equally strong player. Whether the merged entity will have this potential remains to be seen. 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. If Microsoft were to bundle search and advertisement facilities into the Windows operating system, this would certainly be a cause for concern.
Friederiszick concluded: It would be desirable to see the US and European authorities act with some concord on today’s proposal, although this is incredibly challenging. Today’s proposal is a perfect illustration of the challenge of globalization to competition authorities. These are two international businesses 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. But whether Europe will agree on the threat to consumer privacy, given the more interventionist attitude on this side of the Atlantic, remains to be seen.