European regulators are expected to clear Google’s $3.1 billion purchase of online ad company DoubleClick, as early as Tuesday.

Despite Google’s dominance in online advertising, which will likely increase once it acquires DoubleClick, regulators argue there’s still plenty of room for competition in the nascent market. Microsoft hopes to challenge Google by combining forces with Yahoo. However, a potential Microhoo may run into resistance from European regulators who view Microsoft as a software market abuser .

While Google (GOOG) would not speculate on the ruling, industry watchers have been expecting the European Commission to approve the merger since the Federal Trade Commission cleared the deal of antitrust issues in December. A Google spokesman in London said the company anticipates an announcement sometime before the April 2 deadline because European regulators typically do not wait until the final day to make a ruling.

An EC approval removes the last obstacle Google needs to complete the DoubleClick acquisition.

Privacy advocates and rivals like Microsoft (MSFT), have been trying to block merger. Privacy watchdogs have warned that a combination of Google, which keeps logs of a user’s searches, and DoubleClick, a technology platform that tracks which sites a person visits, would be disastrous. But both the FTC and EC have stated that it will only rule on antitrust issues, not privacy concerns. Microsoft has argued that a merger with DoubleClick, which serves ads, would make Google too powerful and prevent competitors from serving and selling ads.

Despite Microsoft’s efforts, the EC is expected to side with Google. The Mountain View, Calif.-based company has argued that nothing prevents one customer from switching from one ad platform to the next. If you want to go to Microsoft or Yahoo (YHOO), no one is stopping you. When Viacom (VIAB) dumped Google to strike a major ad deal with Microsoft, Google was quick to spin it as a positive. “We have argued all along that the online advertising space is highly competitive and that there are no barriers to switching,” a Google spokesman said last December about the deal.

Others agree that Microsoft had a weak case. “The possibility that Google could increase its market power with DoubleClick is quite limited. Internet advertising is a very active market,” said Juan Delgado, a former antitrust official who now is a research fellow at Bruegel, an independent economic think thank in Brussels. “Google is a very powerful player in online advertising, but there’s no secret to this business. It’s similar to MSN or Yahoo. Google’s just more successful.”

Some analysts say that Microsoft’s bid to buy Yahoo for more than $40 billion could raise tougher antitrust concerns, especially in Europe. Last month Europe’s antitrust director Neelie Kroes slapped Microsoft with a record $1.3 billion fine for overcharging competitors for information on how to develop products for Microsoft’s dominant Windows operating system.

“Microsoft has a long history of abusing its market power in certain markets. Google, on the other hand, doesn’t,” said Rebecca Arbogast, a regulatory analyst with Stifel Nicolaus.

Both advertisers and publishers have said that they would like an alternative to Google, even if that means combining the forces of No. 2 and No.3 Yahoo and Microsoft. Should the marriage happen, Google will likely lead an effort to oppose it. Beyond a combined advertising network, MicroHoo would share other broader services that include 90% of free e-mail accounts and a majority of instant messaging accounts, portals and browsers.

Said Arbogast: “The European Commission is concerned about the concentration in online advertising. They are also concerned about privacy. They have a general unease about these American companies bulking up and that the U.S. [government] hasn’t been more vigilant. They’re suspicious of Microsoft and view it as a bad apple. It’ll be interesting to watch their analysis if Microsoft and Yahoo strike a deal.”