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The Role of Search Engine Optimization in Search Rankings

  • Berman, Ron
  • Katona, Zsolt

Web sites invest significant resources in trying to influence their visibility in online search results. We study the economic incentives of Web sites to invest in this process known as search engine optimization. We focus on methods that improve sites' ranking among the search results without affecting their quality. We find that the process is equivalent to an all-pay auction with noise and headstarts. Our results show that in equilibrium, under certain conditions, some positive level of search engine optimization improves the search engine's ranking and thus the satisfaction of its visitors. In particular, if the quality of sites coincides with their valuation for visitors then search engine optimization serves as a mechanism that improves the ranking by correcting measurement errors. While this benefits consumers and search engines, sites participating in search engine optimization could be worse off unless their valuation for traffic is very high. We also investigate how search engine optimization affects sites' investment in content and find that it can lead to underinvestment as a result of wasteful spending on search engine optimization.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20129.

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Date of creation: 12 Jan 2010
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Handle: RePEc:pra:mprapa:20129
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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.
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  6. Anindya Ghose & Sha Yang, 2007. "An Empirical Analysis of Search Engine Advertising: Sponsored Search and Cross-Selling in Electronic Markets," Working Papers 07-35, NET Institute, revised Sep 2007.
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  8. Barut, Yasar & Kovenock, Dan, 1998. "The symmetric multiple prize all-pay auction with complete information," European Journal of Political Economy, Elsevier, vol. 14(4), pages 627-644, November.
  9. Clark, Derek J & Riis, Christian, 1998. "Competition over More Than One Prize," American Economic Review, American Economic Association, vol. 88(1), pages 276-89, March.
  10. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2005. "Internet Advertising and the Generalized Second Price Auction: Selling Billions of Dollars Worth of Keywords," NBER Working Papers 11765, National Bureau of Economic Research, Inc.
  11. Varian, Hal R., 2007. "Position auctions," International Journal of Industrial Organization, Elsevier, vol. 25(6), pages 1163-1178, December.
  12. Rene Kirkegaard, 2008. "Favoritism in Contests: Head Starts and Handicaps," Working Papers 0805, Brock University, Department of Economics, revised Nov 2008.
  13. Zsolt Katona & Miklos Sarvary, 2010. "The Race for Sponsored Links: Bidding Patterns for Search Advertising," Marketing Science, INFORMS, vol. 29(2), pages 199-215, 03-04.
  14. Konrad, Kai A., 2007. "Strategy in contests: an introduction
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