The American Antitrust Institute (AAI) has waded into the Yahoogle debate with a 22-page white paper that worries that the Yahoo-Google alliance will turn into “a black hole that swallows up Yahoo.” And it says that if the government can’t negotiate a consent decree that “preserves Yahoo’s [economic] incentives to remain in the paid search market” and compete against both Google and Microsoft – the only potentially pro-competitive feature in the deal is the money it would throw off that Yahoo could invest in its Panama advertising platform – then the Justice Department should “seek an injunction to prevent Google and Yahoo from implementing their agreement.”

The think tank has serious reservations about Yahoo hanging in there though. “It strains credulity,” it says, “to believe that Google would agree to an arrangement that gives its chief rival $800 million to invest in efforts that would, if successful, reduce Google’s market power.”

The white paper, which claims the transaction could be blocked on antitrust grounds, says negotiating the necessary consent decree would be a slippery slope but that the DOJ might prohibit Yahoo from using Google ads on any third-party web site or on organic search results outside of North America – for all of Google’s talk that the deal’s limited to North America, the AAI says it could be expanded down the road.

A consent decree could also prohibit Google and Yahoo from setting minimum bid or reserve prices, prohibit Yahoo from using Google ads when it has enough of its own ads to fill the white space around an organic search result on its site, and insist that the share of the revenue Yahoo get from each click be constant and not reward Yahoo with a higher share of revenue for using more Google ads.

That said the AAI is still not convinced that these remedies could be drafted “with sufficient simplicity and clarity to allow for effective enforcement by the Department of Justice.”

“For example,” it says, “it is not clear how the Department of Justice could determine whether Yahoo had ads in its own inventory but chose to use Google’s instead. Presumably Yahoo could disclose its algorithm for choosing to request ads from Google to the government and that algorithm could be written in such a way to ensure that Yahoo ads are used first. It remains unclear how the government could be sure that the algorithm provided to it by Yahoo would in fact be the algorithm loaded into Yahoo’s servers. We believe these issues can be worked out, but the details would be critical and difficult to negotiate as part of a consent decree.”

View the American Antitrust Institute’s white paper.

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