Do Consumers Benefit from Concentration in the New Economy? – A Review of Google’s Mergers, Acquisitions and Arrangements

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08121.pdf Non-technical SummaryGoogle was involved in a series of deals, all of them related to the online advertising industry: two mergers with YouTube and DoubleClick and one arrangement with Yahoo!. Scholars in competition policy question the legitimacy of some of these deals (Chin (2006)). I review the basis of this purely negative view and provide arguments that possibly would have underpinned an efficiency defense. In particular, I advocate an increased incentive for the customization of services and content as a beneficial effect, even if resulting from a concentration process. A concentration may be beneficial on markets based on multi-sided platforms (Evans (2002)). However, this cannot serve as a per se ex post justification of the concentrations. In the model I consider the quality of matches between users and advertisers a beneficial effect for consumers, and the ability and incentive of a platform to control this quality, which I incorporate in the model, is crucial for a concentration's assessment.I demonstrate that the merger between Google and YouTube can have beneficial effects for consumers because the match between consumers and advertising can be enhanced. This relies on the presumption that consumers benefit more from having specific search ads displayed on websites than having unspecific advertisement. Assuming that the degree of screening and classifying of the users is subject to Google's discretion, the merger mitigates the incentive to not use its search technology to the full extent. After the merger Google can better identify users of YouTube and match them with ads specifically designed for users of user generated content. The acquisition of DoubleClick endows Google with control over the search ad technology. Leaving aside concerns on consumer privacy, I identify positive effects from an enhanced searching and screening technology. Further, this allows to make advancements in the screening technology. This becomes particularly effective when Google is able to combine this technology with more detailed information about the users' geography, demography, and surfing habits on the internet. The withdrawn arrangement between Google and Yahoo! was double-edged. On the one hand, focusing on the advertising market, which is immediately affected by this deal, there is a negative effect. The advertisers face fewer suppliers of ad space on websites visit...