Analyzing decision of the European Commission Microsoft | Yahoo! Search Business Competition, Strategy, and Institutions Yulia AN | Yulia MIRONOVA
Nov 14, 2015
Analyzing decision of the European Commission
Microsoft | Yahoo! Search Business
Competition, Strategy, and Institutions Yulia AN | Yulia MIRONOVA
Decision of European CommissionMarket overviewPositive effectsNegative effectsPost-transaction analysisConclusion
European Commission
Parties
Microsoft Yahoo!
Online web-wide algorithmic search
Search advertising businesses including online search advertising platform Panama.
Internet search platform, Bing. Online search advertising
platform, adCenter.
Online Services Business division
European Commission
Subject 10-year exclusive license to Yahoo's search technologies.
Yahoo internet search and search advertising staff.
Microsoft as the exclusive internet search and search advertising provider used by Yahoo.
12% of the search revenues generated on Yahoos and its partners' websites during the first five years of the agreement will go to Mirosoft.
Rest 88% will go to Yahoo as a traffic acquisition cost.
European Commission
Decision
Horizontal Merger approved
European Commission
Market overviewPositive effectsNegative effectsPost-transaction analysisConclusion
Organic web search
Search-based advertising
Non-search-based advertising
Contextual
Text
Contextual Non-context
Text Display Display
Adapted from European Commission (2008)
Market overview
010
20
30
40
50
60
2010 2011 2012 2013 2014
Paid search Display Classified
Source: ZenithOpen
Market overview
Advertisers
Users
Market overview
AUZero-price consr
aint
Auction bidding:
Generalized Second-Price
Market overview
AU~ Single-homing
~ Multi-homing
Market overview
Market overview
Production costs Switching costs
Market overview
Production costs Switching costs
Highly specific fixed costs Negligible variable costs Sunk
Market overview
Hardware (USD 1 000 mln) Human capital (USD 1 000 mln) Server infrastructure IP patents Algorithm development Algorithm update R&D
Production costs Switching costs
Highly specific fixed costs Negligible variable costs Sunk
Market overview
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
High entry barriers
Market overview
One click away
Production costs Switching costs
High Low Highly specific fixed costs Negligible variable costs Sunk
Credence good
Network externalities
High entry barriers
High market concentration
Market overview
GoogleYahoo! BingOther
UK France Germany
Ireland Italy SpainDigital Clarity. (2011). Yahoo & Bing Search Engine Merger. Available at http://www.digital-clarity.com/blog/search-engines/yahoo-bing-search-engine-merger/
92% 94,76% 95,69%
94,67% 97,54% 96,96%
European Commission Market Overview
Positive effectsNegative effectsPost-transaction analysisConclusion
Microsoft Yahoo!
Economies of scale Reduction of costs
Positive effects
Microsoft Yahoo!
Economies of scale Reduction of costs
Rationalisation of operational costs Stronger competitor to Google Greater value to advertisors
Positive effects
European Commission Market overview Positive effects
Negative effectsPost-transaction analysisConclusion
Merger
Advertisers
UsersPublishers
Distributors
Merger
Advertisers
Merger
Advertisers
Increased cost per click (CPC) increased bidder density for
particular keywords
Merger
Users
Merger
Users
reduction of variety of choice degradation of organic search unilateral effect
Merger
Publishers
Merger
Publishers
increased competition among publishers reduced competition between the remaining
advertising platforms lower prices paid for publishers web space
MergerDistributors
MergerDistributors
reduced competition between search platforms for distribution agreements
increased Microsofts ability to leverage its market power in areas other than online advertising
European Commission Market overview Positive effects Negative effects
Post-transaction analysisConclusion
0,00%10,00%
20,00%30,00%40,00%50,00%60,00%70,00%80,00%90,00%
100,00%
July 2009 April 2014
AOL, Inc.
Ask Network
Microsoft sites
Yahoo! sites
Google sites
Post-transaction analysis
64,7% 67,6%
19,3% 10%
8,9% 18,7%
Total U.S. search market share Home & Work Locations (2009, 2014). ComScore Explicit Core Search Share Report. comScore qSearch
Post-transaction analysis
10%13%
22%
37%
-10%
14%
-20%
-10%
0%
10%
20%
30%
40%
Impressions ClickthroughRate
Cost-Per-Click
Yahoo! Bing Network Google
U.S. Percentage change of the main search market indicators of Yahoo! Bing Network and Google on a year-over-year basis (Q4 2011 Q4 2012)
Marin Software. (2012). Online Advertising Report, October-December 2012
Post-transaction analysis
Consumer surplus under normalized network benefit parameters
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
Post-transaction analysis
Total welfare under normalized network benefit parameters
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
Post-transaction analysis
A merger between two platforms leads to a slight decrease in consumer surplus and total welfare, but to an increase in total platform profits.However, as t , consumer surplus and total welfare tend to be equal under no merger and merger configurations.
Iurkov, V. (2013). Competition, mergers and exclusive dealing in two-sided markets with zero-price constraints: The case of search engines. Universita CaFoscari Venezia.
European Commission Market overview Positive effects Negative effects Post-transaction analysis
Conclusion
Discussion
ReferencesPhotography of Microsoft Office by Jeff Wong, www.jeffwongdesign.com/2013/10/microsoft-office-interior