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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. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1213-1270.
  2. repec:rje:randje:v:37:y:2006:3:p:668-691 is not listed on IDEAS
  3. Rochet, Jean-Charles & Tirole, Jean, 2003. "Platform Competition in Two-Sided Markets," IDEI Working Papers 152, Institut d'Économie Industrielle (IDEI), Toulouse.
  4. Nicholas Economides & Evangelos Katsamakas, 2004. "Two-sided competition of proprietary vs. open source technology platforms and the implications for the software industry," Working Papers 04-30, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Argenton, C. & Prüfer, J., 2011. "Search Engine Competition with Network Externalities," Discussion Paper 2011-024, Tilburg University, Tilburg Law and Economic Center.
  6. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  7. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  8. Affeldt, P. & Filistrucchi, L. & Klein, T.J., 2012. "Upward Pricing Pressure in Two-Sided Markets," Discussion Paper 2012-029, Tilburg University, Tilburg Law and Economic Center.
  9. Federico Etro, 2007. "Stackelberg competition with endogenous entry," Working Papers 121, University of Milano-Bicocca, Department of Economics, revised 2007.
  10. Hiroaki Ino & Toshihiro Matsumura, 2010. "What role should public enterprises play in free-entry markets?," Journal of Economics, Springer, vol. 101(3), pages 213-230, November.
  11. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  12. Arijit Mukherjee, 2012. "Social Efficiency of Entry with Market Leaders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(2), pages 431-444, 06.
  13. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  14. 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.
  15. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  16. Luchetta, Giacomo, 2012. "Is the Google platform a two-sided market?," 23rd European Regional ITS Conference, Vienna 2012 60367, International Telecommunications Society (ITS).
  17. Roberto Roson, 2012. " Competition between Multiproduct Firms with Heterogeneous Costs," Working Papers 2012_14, Department of Economics, University of Venice "Ca' Foscari".
  18. 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.
  19. Federico Etro, 2010. "Endogenous market structures and antitrust policy," International Review of Economics, Springer, vol. 57(1), pages 9-45, March.
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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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