Google's chief economist, Hal Varian, has hit back at claims that Yahoo's search-ad deal with his company  would mean a 22 percent advertising price increase.

Varian said that "flawed assumptions" and "questionable methodology" undermine the SearchIgnite study that made the claims. He said that ad prices are not set by Yahoo or Google, but by advertisers themselves, through the search-ad keyword bidding process. Varian also said the study assumed Yahoo will show Google ads for as many searches as possible, which it doesn't want to do.

Writing in his blog, Varian said the report includes a misplaced focus on cost per click (CPCs), rather than the more important measure for advertisers -- return on investment of their advertising dollar.

He said that one of the reasons Google's ad system has performed so well for advertisers is that its ads tend to be highly relevant to user queries, which makes it more likely that a user will click on an ad and purchase the advertiser's product.

Google has found that advertisers are generally willing to pay more per click, so long as those clicks result in more sales. He thinks that the agreement with Yahoo! will bring more relevant ads to Yahoo! Users.