Search engine competition with network externalities
AbstractThe market for Internet search is not only economically and socially important, it is also highly concentrated. Is this a problem? We study the question whether "competition is only a free click away". We argue that the market for Internet search is characterized by indirect network externalities and construct a simple model of search engine competition, which produces a market share development that fits the empirically observed development since 2003 well. We find that there is a strong tendency towards market tipping and, subsequently, monopolization, with negative consequences on economic welfare. Therefore, we propose to require search engines to share their data on previous searches. We compare the resulting "competitive oligopoly" market structure with the less competitive current situation and show that our proposal would spur innovation, search quality, consumer surplus, and total welfare. We also discuss the practical feasibility of our policy proposal and sketch the legal issues involved.
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Bibliographic InfoPaper provided by Tilburg University in its series Open Access publications from Tilburg University with number urn:nbn:nl:ui:12-5117898.
Date of creation: 2012
Date of revision:
Publication status: Published in Journal of Competition Law and Economics (2012) v.8, p.73-105
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Web page: http://www.tilburguniversity.edu/
Other versions of this item:
- Argenton, C. & Prüfer, J., 2011. "Search Engine Competition with Network Externalities," Discussion Paper 2011-024, Tilburg University, Tilburg Law and Economic Center.
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-06 (All new papers)
- NEP-COM-2012-12-06 (Industrial Competition)
- NEP-MIC-2012-12-06 (Microeconomics)
- NEP-NET-2012-12-06 (Network Economics)
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