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Double Jeopardy for Google DoubleClick Deal

Google's bid to purchase the Internet advertising firm DoubleClick was scrutinized today in hearings by Rep. Bobby Rush (D-Ill), Chairman of the Congressional Subcommittee on Commerce, Trade, and Consumer Protection and by Sen. Herb Kohl (D-Wi), Chairman of the Subcommittee on Antitrust, Competition Policy, and Consumer Rights. Rush & Kohl have been critical of the proposed $3.1 billion acquisition which is still subject to FTC approval.

Part of what makes this deal complicated is the somewhat sketchy history of DoubleClick itself. Its ill fated “intelligent” targeting service for advertisers raised concerns about online privacy. DoubleClick's new service was controversial because it supposedly used online and offline data to construct profiles of consumers to target advertising. DoubleClick was forced to scrap its controversial targeting system and settled all of its Federal and state lawsuits by 2002. The acquisition of a firm which was temporarily branded as a violator of privacy rights has exacerbated fears of potential future privacy abuses.

As Cord Blomquist and I recently stated:

“DoubleClick paid its due through a number of high cost settlements with several governments in the United States; it should not be branded a habitual infringer of consumer privacy because of that. Letting existing laws deal with potential privacy abuses is better than destroying billions of dollars of shareholder, advertiser, and consumer value through preventing efficient acquisitions.”

In short, corporations, like people, are innocent until proven guilty.

The least nebulous criticism (dare I say “substantive”?) of the proposed acquisition was a 51 page (that's 8.2 ounces of paper) analysis written by Robert W. Hahn and Hal J. Singer. Their 108 footnote research extravaganza replete with Herfindahl-Hirschman Index (HHI) calculations and other statistical trust busting tools would have pleased most law professors. They come to the conclusion that Google would become a price-maker if it acquired DoubleClick's sizable image based advertising business. Google hopes to use DoubleClick's vast consumer behavior data to compete with Yahoo!, who is currently the dominant online image based advertising firm.

Their paper is an interesting one, but ignores several key facts:

  1. The nature of the internet makes online image advertising highly contestable, prohibiting Google from charging a monopoly price.
  2. The HHI is a silly exercise in applied mathematics, not a reflection of competitiveness.
  3. The paper only distinguished between text and image ads once on page 14. DoubleClick's expertise is image based advertising. Yahoo! is currently the king of online image advertising. DoubleClick combined with Google could begin to challenge their hegemony, actually increasing competition for image based advertising.
  4. The market is a dynamic process and not a static slice in time. This paper may reflect reality immediately after the acquisition, but economic realities have a funny way of changing . . . constantly.

Online image advertising is a growing market that would be more competitive with Google's acquisition of DoubleClick. But let's say I'm wrong and Google's acquisition turns into a textbook case of a monopoly that restrains trade, limits innovation, and destroys competition through predation or collusion (the first private company in history to do so). Wouldn't Hahn and Singer love that? It would be the first time that they could justifiably argue for the use of antitrust laws to bust up a company. Let's not punish a company until it's actually become a monopoly, not based on the suspicion that it might.