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    Microsoft-Yahoo Search Business Case

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    Jul Ahn
    The document summarizes the European Commission's decision regarding Microsoft's proposed acquisition of Yahoo!'s search business. The Commission conducted a market overview, identified potential positive and negative effects, analyzed the transaction, and came to a conclusion. The Commission approved the horizontal merger after determining that while it may slightly decrease short-term consumer surplus and welfare, the long-term impacts were unclear and effects would likely equalize over time between the merger and no merger scenarios.

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    © All Rights Reserved
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    Microsoft-Yahoo Search Business Case

    Uploaded by

    Jul Ahn
    116 views44 pages
    The document summarizes the European Commission's decision regarding Microsoft's proposed acquisition of Yahoo!'s search business. The Commission conducted a market overview, identified potential positive and negative effects, analyzed the transaction, and came to a conclusion. The Commission approved the horizontal merger after determining that while it may slightly decrease short-term consumer surplus and welfare, the long-term impacts were unclear and effects would likely equalize over time between the merger and no merger scenarios.

    Original Description:

    EU Commision's decision on M&A of Microsoft and Yahoo Search Businesses

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    The document summarizes the European Commission's decision regarding Microsoft's proposed acquisition of Yahoo!'s search business. The Commission conducted a market overview, identified potential positive and negative effects, analyzed the transaction, and came to a conclusion. The Commission approved the horizontal merger after determining that while it may slightly decrease short-term consumer surplus and welfare, the long-term impacts were unclear and effects would likely equalize over time between the merger and no merger scenarios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    116 views44 pages

    Microsoft-Yahoo Search Business Case

    Uploaded by

    Jul Ahn
    The document summarizes the European Commission's decision regarding Microsoft's proposed acquisition of Yahoo!'s search business. The Commission conducted a market overview, identified potential positive and negative effects, analyzed the transaction, and came to a conclusion. The Commission approved the horizontal merger after determining that while it may slightly decrease short-term consumer surplus and welfare, the long-term impacts were unclear and effects would likely equalize over time between the merger and no merger scenarios.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 44

    Analyzing decision of the

    European Commission

    Microsoft | Yahoo! Search Business


    Competition, Strategy, and Institutions

    Yulia AN | Yulia MIRONOVA

    Decision of European Commission


    Market overview
    Positive effects
    Negative effects
    Post-transaction analysis
    Conclusion

    European Commission

    Parties
    Microsoft

    Yahoo!

    Online Services Business division


    Internet search platform, Bing.
    Online search advertising
    platform, adCenter.

    Online web-wide algorithmic


    search
    Search advertising businesses
    including online search
    advertising platform Panama.

    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 overview
    Positive effects
    Negative effects
    Post-transaction analysis
    Conclusion

    Market overview

    Organic
    web search

    Search-based
    advertising

    Non-search-based
    advertising

    Contextual

    Contextual

    Non-context

    Text

    Text Display

    Display

    Adapted from European Commission (2008)

    Market overview
    60
    50
    40
    30
    20
    10
    0
    2010

    2011

    Paid search
    Source: ZenithOpen

    2012
    Display

    2013
    Classified

    2014

    Market overview

    Advertisers
    Users

    Market overview

    g:
    in
    d
    id
    b
    n
    io
    t
    c
    u
    A
    e
    ic
    r
    P
    d
    n
    o
    c
    e
    S
    Generalized

    aint
    r
    s
    n
    o
    c
    e
    ic
    r
    p
    o
    Zer

    Market overview

    g
    in
    m
    o
    h
    ilt
    u
    M
    ~

    g
    in
    m
    o
    h
    le
    g
    in
    S
    ~

    Market overview

    Production costs

    Switching costs

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Hardware (USD 1 000 mln)


    Human capital (USD 1 000 mln)
    Server infrastructure
    IP patents
    Algorithm development
    Algorithm update
    R&D

    Switching costs

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs
    High

    Low

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs
    High
    Credence
    good

    Low
    One click
    away

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs
    High
    Credence
    good

    Network externalities

    Low
    One click
    away

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs
    High
    Credence
    good

    Network externalities
    High entry barriers

    Low
    One click
    away

    Market overview

    Production costs
    Highly specific fixed costs
    Negligible variable costs
    Sunk

    Switching costs
    High
    Credence
    good

    Network externalities
    High entry barriers
    High market concentration

    Low
    One click
    away

    Market overview
    UK

    France

    Germany

    92%

    94,76%

    95,69%

    Ireland

    Italy

    Spain

    94,67%

    97,54%

    96,96%

    Google
    Yahoo! Bing
    Other

    Digital Clarity. (2011).


    Yahoo & Bing Search
    Engine Merger. Available
    at http://www.digitalclarity.com/blog/searchengines/yahoo-bingsearch-engine-merger/

    European Commission
    Market Overview

    Positive effects
    Negative effects
    Post-transaction analysis
    Conclusion

    Positive effects

    Microsoft
    Economies of scale

    Yahoo!
    Reduction of costs

    Positive effects

    Microsoft
    Economies of scale

    Yahoo!
    Reduction of costs

    Rationalisation of operational costs


    Stronger competitor to Google
    Greater value to advertisors

    European Commission
    Market overview
    Positive effects

    Negative effects
    Post-transaction analysis
    Conclusion

    Users
    Advertisers

    Publishers
    Distributors

    Merger

    Advertisers
    Merger

    Advertisers
    Merger
    Increased cost per click (CPC)
    increased bidder density for
    particular keywords

    Users

    Merger

    Users

    Merger
    reduction of variety of choice
    degradation of organic search
    unilateral effect

    Publishers

    Merger

    Publishers

    Merger
    increased competition among publishers
    reduced competition between the remaining
    advertising platforms
    lower prices paid for publishers web space

    Distributors
    Merger

    Distributors
    Merger
    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 analysis
    Conclusion

    Post-transaction analysis

    100,00%
    90,00%
    80,00%
    70,00%
    60,00%
    50,00%
    40,00%
    30,00%
    20,00%
    10,00%
    0,00%

    AOL, Inc.

    8,9%

    18,7%

    19,3%

    10%

    64,7%

    July 2009

    Ask Network
    Microsoft sites
    Yahoo! sites

    67,6%

    Google sites

    April 2014

    Total U.S. search market


    share Home & Work
    Locations (2009, 2014).
    ComScore Explicit Core
    Search Share Report.
    comScore qSearch

    Post-transaction analysis

    37%

    40%
    30%

    22%

    20%
    10%

    10%

    14%

    13%

    0%
    -10%

    Impressions

    Clickthrough
    Rate
    -10%

    Cost-Per-Click

    -20%
    Yahoo! Bing Network

    U.S. Percentage
    change of the main
    search market
    indicators of Yahoo!
    Bing Network and
    Google on a yearover-year basis (Q4
    2011 Q4 2012)

    Google

    Marin Software. (2012).


    Online Advertising
    Report, OctoberDecember 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

    References
    Photography of Microsoft Office by Jeff Wong, www.jeffwongdesign.com/2013/10/microsoft-office-interior

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