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Search engines: Left side quality versus right side profits

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  • White, Alexander

Abstract

Search engines face an interesting tradeoff in choosing the way to display their results. While providing high quality unpaid, or “left side” results attracts users, doing so can also cannibalize the revenue that comes from paid ads on the “right side”. This paper examines this tradeoff, focusing, in particular, on the role of users' post-search interaction with the websites whose links are displayed. In the model, high quality left side results boost demand from users, causing them to tolerate a search engine on which advertisers do not offer the lowest possible prices for the goods that they sell. However, because websites appearing on the left side still have an incentive to compete in the same market as advertisers, an increase in quality on the left side may reduce advertisers' equilibrium prices. I analyze the circumstances under which this will occur and discuss the model's potential implications for antitrust policy.

Suggested Citation

  • White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
  • Handle: RePEc:eee:indorg:v:31:y:2013:i:6:p:690-701
    DOI: 10.1016/j.ijindorg.2013.04.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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 Sep 2014.
    2. Renato Gomes, 2014. "Optimal auction design in two-sided markets," RAND Journal of Economics, RAND Corporation, vol. 45(2), pages 248-272, June.
    3. Peitz, Martin & Reisinger, Markus, 2014. "The Economics of Internet Media," Working Papers 14-23, University of Mannheim, Department of Economics.
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    5. Hagiu, Andrei & Jullien, Bruno, 2014. "Search diversion and platform competition," International Journal of Industrial Organization, Elsevier, vol. 33(C), pages 48-60.
    6. Simon P. Anderson & Joshua S. Gans, 2011. "Platform Siphoning: Ad-Avoidance and Media Content," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 1-34, November.
    7. Alexandre Cornière & Greg Taylor, 2014. "Integration and search engine bias," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 576-597, September.
    8. Burguet, Roberto & Caminal, Ramon & Ellman, Matthew, 2015. "In Google we trust?," International Journal of Industrial Organization, Elsevier, vol. 39(C), pages 44-55.
    9. Alexandre de Cornière, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    10. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1213-1270.
    11. Alexander White & E. Glen Weyl, 2010. "Imperfect Platform Competition: A General Framework," Working Papers 10-17, NET Institute, revised Nov 2010.
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    More about this item

    Keywords

    Search engines; Economics of the Internet; Two-sided markets; Monopolist quality choice; Media bias;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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