• July 16, 2008

Executives from Google and Yahoo defended their search deal on Capitol Hill Tuesday, stressing that they would continue to compete with each other.

Google's chief legal officer, David Drummond, said the arrangement would not lead to a price increase because the company doesn't set prices. Instead, advertisers choose how much they're willing to pay by bidding for keywords at auction.

But Microsoft genearl counsel Brad Smith argued the arrangement would be anti-competitive, as it would give Google control of 90% of the paid search market--its 70% plus Yahoo's 20%. "Never before in the history of advertising has one company been in a position to control prices on up to 90% of advertising in a single medium," he said. "Not in television, not in radio, not in publishing. It should not happen on the Internet."

Google and Yahoo disputed that assertion, stating that because Yahoo was going to continue to operate its own paid search platform, Google would not gain control of Yahoo's existing market share.

The Senate and House held hearings on the deal Tuesday, but the Department of Justice is independently evaluating whether to approve it.

--Wendy Davis