What is more, for every $1 a company spends on search advertising, Google will waive the fees on $10 worth of purchases. Factoring in the 2 percent fee, that represents a rebate of at least 20 percent of advertising spending.

Mr. Schmidt said the company was willing to lose money on transaction fees because it felt the package would increase advertising spending.

"The math works because we can have lower prices and higher volume," he said.

Google's decision to give free transaction processing to advertisers has the potential to disrupt its carefully cultivated electronic auction for ad placement. Google has worked hard to ensure that the auction treats all advertisers equally, sometimes to the dismay of big companies that are used to discounts for major purchases. It has not offered commissions to advertising agencies, as most media companies do.

Online merchants that do not want to use Google Checkout "might be a little peeved," said Kevin Lee, chief executive of Did-it.com, a search advertising agency. "They might say if you give that credit to some people for credit card processing, give it to me for something else."

Mr. Schmidt said Google had not considered this issue.

While Google's tactics may be seen as aggressive competition, the company is unlikely to run afoul of antitrust laws because it does not have a monopoly in the market.

Image When customers click on the advertiser's link, they are given the choice of using traditional payment methods or Google Checkout. Credit... Google

Yahoo, the other main seller of advertising on search results, recently announced an alliance with eBay that among other things will encourage Yahoo advertisers to use PayPal for payment processing. PayPal will also be promoted as the online wallet for use on Yahoo services. Both companies declined to give financial details of the deal.