About two months ago, SearchIgnite released a study saying that the Google-Yahoo search ad partnership could result in keyword prices being increased by 22 percent.  Hal Varian, Google’s chief economist, has now responded with a five-point version of “that ain’t so.”

Varian begins, “[T]he report fails to acknowledge that ad prices are not set by Yahoo! or Google, but by advertisers themselves, through the auction process.  Since advertisers set prices themselves via an auction, the prices must ultimately reflect advertiser values.  That process will remain completely unchanged by our agreement.”

Then he goes after the idea that Yahoo will be able to compare its own ad prices to Google’s.  “In fact, under our agreement Yahoo! won’t be able to see the current auction prices for Google ads, just as Google won’t be able to see Yahoo’s prices,” Varian writes.

The economist’s third reason is less concrete, but he says that Yahoo will turn to Google’s ads more as a last resort than a default choice.  He notes a focus on CPCs when ROI should instead get everyone’s attention.  And lastly, Varian gets into some questions about SearchIgnite’s methodology.

The arguments might have been more effective had they been put forward two months ago; some people have gotten pretty worked up in the meantime.  Still, if you find them convincing, it should be nice to hear that keyword prices won’t be heading through the roof.

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