With the European Union announcing that it will launch an inquiry -- a step below a formal investigation -- into Google's ad-sharing deal with Yahoo, the open question is whether the arrangement would in fact be anticompetitive.
Even though the ads will be shared only on Yahoo's U.S. and Canadian sites, the EU believes that because the companies operate in Europe, the deal will impact European consumers. Google had hoped to avoid EU scrutiny by excluding Yahoo's European sites from the ad deal.
Now that the game is on in the EU, Google is taking its case to the court of public opinion. Tuesday Hal Varian, Google's chief economist, lashed out at a July report by SearchIgnite, which predicted that keyword advertising rates would jump 22 percent as a result of a Google-Yahoo deal.
Tail, Head, Brand Terms
SearchIgnite broke its study into three kinds of keywords: "tail" terms, which are infrequently searched, very specific terms; "head" terms, which are commonly searched words and phrases; and "brand" terms, which include brand and product names. In all three categories, SearchIgnite predicted costs to marketers would rise.
For tail terms, the top three ad positions are 12 percent to 17 percent more expensive on Google than Yahoo. For head terms, Yahoo ads are actually 5 percent to 16 percent more expensive than Google in the first three ad positions, but 23 percent cheaper in the fourth position. Yahoo is typically more expensive than Google on brand terms, the study found.
In his rebuttal to this study on Google's Public Policy Blog, Varian said the study was based on "flawed assumptions and questionable methodology." Varian's key argument is that the agreement will deliver "significantly better performance at prices that reflect that improved performance."
Problems, Problems
Varian identifies three problems with the report. Most importantly, he wrote, the study doesn't recognize that...

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