Justice Dept looking at Google/Yahoo test

The initial Google and Yahoo test is small, covering only 3 percent of Web searches performed on Yahoo, the companies have said.

Google is the top search engine with 63 percent of searches, and No. 2 Yahoo has 17 percent, a combined 80 percent of the market, according to ratings company Hitwise.

Philip Bromiley, who teaches law at the University of California at Irvine, said that kind of clout meant that companies could sharply raise prices.

"Any industry, when you start to see that kind of figure, you're going to have antitrust arguments," he said.

Sources familiar with the matter told Reuters on Tuesday that Yahoo was still in separate talks with News Corp and Time Warner Inc about other types of deals -- all designed to avoid a Microsoft takeover.

Microsoft is prepared to walk away from its bid for Yahoo Inc if the two sides can't agree on a price, Chief Executive Steve Ballmer said in Italy on Wednesday.

"We think the best way to move forward quickly is to come together with Yahoo," Ballmer said. "Hopefully that works. But if it doesn't, we go forward."

Ballmer has set a Saturday deadline for Yahoo's board to accept a deal with Microsoft or face a lower bid that Microsoft would take directly to Yahoo's shareholders. Yahoo's board of directors says Microsoft's cash-and-stock offer is too low.

Yahoo President Susan Decker told Wall Street analysts in a conference call on Tuesday that it was too early to say whether Yahoo would reach a deal to turn over some part of the company's Web search advertising business to rival-turned-Microsoft-counterweight Google.

"It's premature to speculate on what options we may ultimately pursue or whether some form of arrangement might result," Decker said.

(Reporting by Diane Bartz and Eric Auchard; Editing by Tim Dobbyn)