Chart: How Google-AdMob Creates a Bottleneck; How new DOJ/FTC merger guidelines affect the deal

Given the FTC is very likely to disapprove Google's acquisition of AdMob soon, I have prepared a one-page chart that illustrates the core reason the deal is anti-competitive: it would create a substantial bottleneck for advertisers and publishers entering the in-application mobile advertising market.

• To help people get up to speed on the deal and the likely FTC disapproval coming up, I have also pulled together a 30-page Google-Admob backgrounder, which includes a one-page summary, charts, the top 10 reasons the deal is anti-competitive, why Google is a monopoly, how Google has abused its monopoly, and why Google's main antitrust defenses, like "competition is one click away," are specious.

Impact of New DOJ/FTC Horizontal Merger Guidelines On Deal:

The release by the DOJ/FTC of their new horizontal merger guidelines 4-20-10, make it more likely this merger will be blocked by the FTC and also makes it more likely that the FTC's likely suit to block the deal will pass Federal Court muster. That is because, some new parts of the new merger guidelines dovetail very nicely with the arguments the FTC is expected to make in opposing this classic horizontal merger case. For example:

• The new guidelines indicate the DOJ/FTC will take a much tougher line on mergers in nascent markets like Admob's:
  • "Given this inherent need for prediction, these Guidelines reflect the Congressional intent that merger enforcement should interdict competitive problems in their incipiency and that certainty about anticompetitive effect is seldom possible and not required for a merger to be illegal." (p.1)
• The guidelines now indicate a merger can be anti-competitive by simply eliminating a key competitor.
  • "A merger can enhance market power simply by eliminating competition between the merging parties." (p. 2)

• The new guidelines put more emphasis on preventing acqusition of monopsony power, buyer market power, (like I focused on last fall in "Googleopoly IV: How Google extends it search monopoly to monopsony power over digital information.")

• "Mergers of competing buyers can enhance market power on the buying side of the market, just as mergers of competing sellers can enhance market power on the selling side of the market. Buyer market power is sometimes called "monopsony power." To evaluate whether a merger is likely to enhance market power on the buying side of the market, the Agencies employ essentially the framework described above for evaluating whether a merger is likely to enhance market power on the selling side of the market."

• Lastly, the new guidelines now specifically indicate that paying a very-high, supra-competitive price for an acquisition could be evidence of an anti-competitive merger. Remember Google admitted to paying a $1 billion premium for YouTube, and the very high price Google paid for AdMob suggests that Google's strong intent was to keep AdMob out of Apple's hands so Apple could not become a better competitor to Google in mobile advertising
• "The financial terms of the transaction may also be informative regarding competiive effects. For example, a high purchase price may indicate that the acquiring firm is paying a premium to reduce competition or that the acquired firm has assets not easily replaced." (p.4)

 

In sum, the new DOJ/FTC guidelines are a very negative indicator for the pending Google-Admob deal. They provide the best, freshest, and deepest look into the thinking behind the Obama Administration's pledge to toughen antitrust enforcement -- and that new thinking is clearly hostile to a deal like Google-AdMob.

Google apparently did not adjust its merger strategy to the realities of the new antitrust enforcement environment, or Google unwisely gambled that they could politically influence the outcome of the law enforcement process.

Simply, the new DOJ/FTC Horizontal Merger Guidelines prove the Google-AdMob deal is very likely to be found anti-competitive/illegal, compelling the FTC to sue in Federal Court to get an injunction to block the Google-AdMob deal from consumating -- unless Google drops the deal beforehand.