• by Wendy Davis , Staff Writer @wendyndavis, September 17, 2008

The federal authorities, a dozen U.S. states and, now, the European Union, are mulling whether Google's ad deal with Yahoo violates antitrust laws.

And that's to say nothing of groups like the Association of National Advertisers and World Association of Newspapers, which also weighed in against Yahoo's plan to outsource small percentage of paid search ads to Google.

Against the backdrop of this opposition, Google's chief economist, Hal Varian, posted a lengthy explanation of why the deal won't be bad for search marketers on Google public policy blog. Specifically, he takes issue with a July report by SearchIgnite concluding that Yahoo keyword prices could increase by 22%.

"The paper suggests that advertisers will be getting the same performance from the same ads, just at higher prices. We believe that advertisers will be getting significantly better performance at prices that reflect that improved performance," he wrote.

This argument makes sense when you consider that it's marketers who set the prices for ads by bidding for them, as opposed to Google imposing a price. Additionally, the search agencies that manage bids for large marketers don't submit bids in a vacuum. Rather, they have some sense of how many people who click on an ad are likely to make a purchase and adjust their bids accordingly.

There are many reasons to be wary of Google. It retains information about visitors in ways that may compromise their privacy, it has the power to destroy small businesses by arbitrarily removing their Web sites from the search results pages, and it's been notoriously unresponsive to legitimate complaints by companies like KinderStart, which saw traffic plummet after being delisted as well as by search marketers who didn't understand how they were being charged.

But, despite all the legitimate gripes against Google, it's hard to see how the deal with Yahoo -- at least in its current form -- will harm the marketplace.