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Author Info

  • Roberto Burguet
  • Ramon Caminal
  • Matthew Ellman

Abstract

We develop a model of the interacting markets for online content and offline products. We portray content providers and the search engine as competing platforms that intermediate in the product market (a horizontal relation), while also vertically related in the content market. Explicitly modeling both markets allows us to characterize the substitutability (and manipulability) of search and display advertising, and its effect on the incentives to distort organic search results as well as spillovers on the reliability of sponsored search results. Specifically, improvements in the technology for targeting display ads increases this substitutability and the threat of organic search distortions. Integration of the search engine that results in full monopolization of the display ad market improves search reliability and raises consumer and total welfare, if content providers are similar. However, partial integration, or full integration when content providers differ in their ad effectiveness, introduce additional incentives for distortion and may reduce consumer and total welfare.

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Bibliographic Info

Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 717.

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Date of creation: Feb 2014
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Handle: RePEc:bge:wpaper:717

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Related research

Keywords: search engine bias; internet economics; vertical integration; two-sided markets; antitrust;

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References

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  1. Yongmin Chen & Chuan He, 2011. "Paid Placement: Advertising and Search on the Internet," Economic Journal, Royal Economic Society, vol. 121(556), pages F309-F328, November.
  2. Avi Goldfarb & Catherine Tucker, 2011. "Search Engine Advertising: Channel Substitution When Pricing Ads to Context," Management Science, INFORMS, vol. 57(3), pages 458-470, March.
  3. Susan Athey & Glenn Ellison, 2009. "Position Auctions with Consumer Search," NBER Working Papers 15253, National Bureau of Economic Research, Inc.
  4. Matthew Ellman & Fabrizio Germano, 2009. "What do the Papers Sell? A Model of Advertising and Media Bias," Economic Journal, Royal Economic Society, vol. 119(537), pages 680-704, 04.
  5. Larbi Alaoui & Fabrizio Germano, 2012. "Time scarcity and the market for news," Economics Working Papers 1348, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2013.
  6. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, vol. 67(1), pages 25-38.
  7. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
  8. 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.
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