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Long-Term Investment Decision Research Paper

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Long-Term Investment Google operates in the online advertising business. However, when the company had its moment with regulators it was in the "search engine" business. This effort was undertaken by both U.S. And EU regulators (Crawford, 2012). The issue at hand was not whether Google had legitimately come to dominate Internet searches -- it built its dominance on technological superiority rather than through acquisitions -- but whether or not the company was using this dominance to promote its other ventures. This is still an odd question, given that these other features are still not where Google or any other company earns money. However, the case is similar to that which Microsoft faced for bundling Internet Explorer in with Windows. While many companies offer browsers, nobody can make any money on them anymore.

Crawford (2012) notes, however, that Google is moving towards using personalized technology, vertically-integrated ecosystems (using the Android operating system and Chrome browser) and other techniques to win business. The rapid change in technology in the industry means that there is considerable room for new entrants to get into the business with an innovative product.

It is also worth noting that online advertising is what Google does for a living. This is the source of the vast majority of its earnings, and in this industry Google does not have a monopoly. It is the largest player, but Facebook has a large and growing market share, and Yahoo, Microsoft and others are still strong competitors. Furthermore, Google wins its business through superior collection and management of data, not through abuse of monopoly power. This is why the antitrust moves against Google have failed thus far in the U.S. (CBS, 2013).

If Google was to try to merge with another major competitor...

The reason is that while there are other competitors, Google's market share means that there is some concentration in the online advertising business. Google's 2013 market share is estimated to be 48.2%, with Facebook at 15.3% and smaller amounts for the other firms in the industry, including YP, Pandora, Twitter, Apple, Millennial Media and others (eMarketer, 2013). The Department of Justice uses a measure of industry concentration known as the Herfindahl-Hirschman Index as one of its main measures to determine whether a merger can go through. This measures the concentration in the industry.
The current HHI for online advertising is 2598.7, which makes the industry a "highly concentrated market." Thus, it depends on the takeover target as to whether anything would be done. Changes of less than 100 of HHI are not usually scrutinized. If Google purchased Millennial Media, which has a 1.1% share, the new HHI would be 2705.99, so even this would not receive an automatic pass. But this increase is just above the 100 point threshold and might be allowed to pass, particularly if evidence suggests that Google is losing market share and that going forward there will not be much change in the market position of the combined firm. A purchase of, say, Pandora, would result in an HHI of 3042.78, which would almost certainly not be allowed. Thus, what we see is that the industry is just over the threshold of being highly concentrated, which brings about a high level of federal scrutiny (DOJ, 2013).

Rationale

The rationale for government intervention in the markets is that the markets work best for the consumer when there is competition. The idea of antitrust laws was introduced in response to the abuses of companies…

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References

CBS. (2013). FTC: Google does not violate antitrust laws. CBS News. Retrieved December 12, 2013 from http://www.cbsnews.com/news/ftc-google-does-not-violate-antitrust-laws/

Crawford, S. (2012) Is Google a monopoly? Wrong question. Bloomberg. Retrieved December 12, 2013 from http://www.bloomberg.com/news/2012-07-08/is-google-a-monopoly-wrong-question.html

DOJ. (2013). Horizontal merger guidelines. U.S. Department of Justice and the Federal Trade Commission. Retrieved December 12, 2013 from http://www.justice.gov/atr/public/guidelines/hmg-2010.html#5c

eMarketer. (2013) Google, Facebook solidify hold of U.S. mobile ad market. eMarketer.com. Retrieved December 12, 2013 from http://www.emarketer.com/Article/Google-Facebook-Solidify-Hold-of-U.S.-Mobile-Ad-Market/1010172
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