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How Microsoft acquired Yahoo | Search business case
1. Analyzing decision of the
European Commission
Microsoft | Yahoo! Search Business
Competition, Strategy, and Institutions Yulia AN | Yulia MIRONOVA
2. Decision of European Commission
Market overview
Positive effects
Negative effects
Post-transaction analysis
Conclusion
3. 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
4. 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 Yahoo’s 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.
18. Market overview
−− One click
away
Production costs Switching costs
High Low−− Highly specific fixed costs
−− Negligible variable costs
−− Sunk
−− Credence
good
19. Market overview
−− One click
away
Production costs Switching costs
High Low−− Highly specific fixed costs
−− Negligible variable costs
−− Sunk
−− Credence
good
Network externalities
20. 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
21. 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
22. Market overview
Google
Yahoo! Bing
Other
UK France Germany
Ireland Italy Spain
Digital 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%
25. Microsoft Yahoo!
−− Economies of scale −− Reduction of costs
−− Rationalisation of operational costs
−− Stronger competitor to Google
−− Greater value to advertisors
Positive effects
33. Merger
Publishers
−− increased competition among publishers
−− reduced competition between the remaining
advertising platforms
−− lower prices paid for publishers’ web space
35. Merger
Distributors
−− reduced competition between search platforms
for distribution agreements
−− increased Microsoft’s ability to leverage its market
power in areas other than online advertising
41. 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 Ca’Foscari Venezia.