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Advertising and search engines. A model of leadership in search advertising

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Author Info

  • Etro, Federico

Abstract

We analyze the role of leadership in a multi-sided market as search advertising, assuming quantity competition and different entry conditions (with barriers to entry or endogenous entry). The model can be microfounded taking into account network effects, multi-homing on the advertising side and scale in search. If there are barriers to entry and the network effects are strong, there is an incentive for the leader to exploit them and attract more consumers to monopolize advertising. Under barriers to entry, the leading platform has also a strategic incentive to exploit scale in search, to manipulate search results to divert search traffic from other platforms, and to introduce limits to multi-homing, with the aim of expanding its market share and deny scale to competitors.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 67 (2013)
Issue (Month): 1 ()
Pages: 25-38

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Handle: RePEc:eee:reecon:v:67:y:2013:i:1:p:25-38

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Web page: http://www.elsevier.com/locate/inca/622941

Related research

Keywords: Dominance; Two-sided markets; Online advertising; Endogenous entry;

References

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  1. Hiroaki Ino & Toshihiro Matsumura, 2009. "What role should public enterprises play in free-entry markets?," Discussion Paper Series 46, School of Economics, Kwansei Gakuin University, revised Jun 2009.
  2. Nicholas Economides & Evangelos Katsamakas, 2006. "Two-Sided Competition of Proprietary vs. Open Source Technology Platforms and the Implications for the Software Industry," Management Science, INFORMS, vol. 52(7), pages 1057-1071, July.
  3. Affeldt, P. & Filistrucchi, L. & Klein, T.J., 2012. "Upward Pricing Pressure in Two-Sided Markets," Discussion Paper 2012-069, Tilburg University, Center for Economic Research.
  4. Argenton, C. & Prüfer, J., 2012. "Search engine competition with network externalities," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5117898, Tilburg University.
  5. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1213-1270.
  6. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Hiroaki Ino & Toshihiro Matsumura, 2009. "How Many Firms Should Be Leaders? Beneficial Concentration Revisited," Discussion Paper Series 48, School of Economics, Kwansei Gakuin University, revised Oct 2009.
  8. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  9. Arijit Mukherjee, . "Social efficiency of entry with market leaders," Discussion Papers 10/07, University of Nottingham, School of Economics.
  10. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  11. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  12. Luchetta, Giacomo, 2012. "Is the Google platform a two-sided market?," 23rd European Regional ITS Conference, Vienna 2012 60367, International Telecommunications Society (ITS).
  13. Federico Etro, 2010. "Endogenous market structures and antitrust policy," International Review of Economics, Springer, vol. 57(1), pages 9-45, March.
  14. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  15. Roberto Roson, 2012. " Competition between Multiproduct Firms with Heterogeneous Costs," Working Papers 2012_14, Department of Economics, University of Venice "Ca' Foscari".
  16. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  17. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  18. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  19. Nikhil Agarwal & Susan Athey & David Yang, 2009. "Skewed Bidding in Pay-per-Action Auctions for Online Advertising," American Economic Review, American Economic Association, vol. 99(2), pages 441-47, May.
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Citations

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Cited by:
  1. Roberto Burguet & Ramon Caminal & Matthew Ellman, 2014. "In Google We Trust?," Working Papers 717, Barcelona Graduate School of Economics.
    • Roberto Burguet & Ramon Caminal & Matthew Ellman, 2013. "In Google we trust?," UFAE and IAE Working Papers 935.13, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 12 Feb 2014.

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