Beef up Your Competitor: A Model of Advertising Cooperation between Internet Search Engines
AbstractWe propose a duopoly model of competition between internet search engines endowed with different technologies and study the effects of an agreement where the more advanced firm shares its technology with the inferior one. We show that the superior firm enters the agreement only if it results in a large enough increase in demand for advertising space at the competing .rm and a relatively small improvement of the competitor's search quality. Although the superior firm gains market share, the agreement is beneficial for the inferior firm, as the later firm's additional revenues from a higher advertising demand outweigh its losses due to a smaller user pool. The cooperation is likely to be in line with the advertisers' interests and to be detrimental to users' welfare.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 870.
Length: 29 p.
Date of creation: 2009
Date of revision:
Publication status: Published in: The B.E. Journal of Economic Analysis & Policy 11 (2011), 1, Article 37
Search Engine; Two-Sided Market; Advertising; Strategic Complements; Technology;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-COM-2009-04-05 (Industrial Competition)
- NEP-ICT-2009-04-05 (Information & Communication Technologies)
- NEP-IND-2009-04-05 (Industrial Organization)
- NEP-MIC-2009-04-05 (Microeconomics)
- NEP-MKT-2009-04-05 (Marketing)
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