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Competition, Conglomerates, and Google

1. Google agreed to acquire ITA Software, a flight-information software company, for $700 million in cash, outmaneuvering other potential bidders in a deal likely to bring fresh antitrust scrutiny to the Web giant. Google said the acquisition of ITA, a closely held company that specializes in organizing airline data such as flight times, availability and prices, will allow it to create new flight search tools to help people find better flight information more easily on the Web." (Retrieved from http://solutions.dowjones.com/tnt/assets/scottrade/morningbriefing.html on July 2, 2010)

We, as a society, need to be careful about an overly large concentration of production for many goods and services in the hands of only a few firms due to the adverse affects of pricing issues in the wake of disruption to the normal competitive process inherent with traditional supply and demand economics.

a) What are the differences among horizontal, vertical, and conglomerate mergers?
b) What do you think the U.S. government view will be for this proposed Google acquisition?

2. Consider international aspects of microeconomics.

a) What is the stance of other developed countries on this issue?
b) Are there any examples where other counties are more restrictive of anti-competitive sanctions against large powerful businesses? What about the other way around; are there countries who don't seem to care about maintaining a high level of competition?

Solution Preview

With questions like these, OTA's have to be careful not to be doing a student's homework for them. Our responsibility is to direct students in addressing questions while taking caution not to be doing a specific assignment. Such caution was particularly necessary with Question (2). Consequently, I have included a hybrid of my own responses and information and outside resources that should properly direct you.

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1.

a) What are the differences among horizontal, vertical, and conglomerate mergers?

Horizontal = between firms that sell competing products in the same market
Vertical = between firms in different stages of the production of one good (I.e., the output of one firm is the input for another)
Conglomerate = between firms that are in separate industries

b) What do you think the U.S. government view will be for this proposed Google acquisition?

Because Google does not already have its own flight search option, Google's acquisition of ITA is more of a vertical merger than horizontal. Vertical mergers tend to be less scrutinized than horizontal mergers. However, there are other flight search engines that use ITA data; These include Microsoft's Bing, Kayak, Expedia and Orbitz. Consequently, if Google owns the rights to ITA data, it then has a stake in each of these "competitor's" and has the power to dominate the online flight travel sector. This may increase the probability for an antitrust investigation.

2.

a) For this question, I would consider addressing the European Union's stance on antitrust.
Larry Bumgardner is a professor of business law at Pepperdine University. He wrote a good article on the EU's antitrust policy ...

Solution Summary

Vertical, Horizontal, and Conglomerate mergers all pose various issues in addressing antitrust issues and maintaining the market for competition. Further, the type of merger often influences public opinion and the judiciary system when antitrust concerns are brought forth. Google's acquisition of ITA Software poses a unique example of these issues.

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