Affiliation:
1. Toulouse School of Economics. 21 Allée de Brienne, 31000 Toulouse, France (e-mail: )
Abstract
Search engines enable advertisers to target consumers based on the query they have entered. In a framework in which consumers search sequentially after having entered a query, I show that such targeting reduces search costs, improves matches and intensifies price competition. However, a profit-maximizing monopolistic search engine imposes a distortion by charging too high an advertising fee, which may negate the benefits of targeting. The search engine also has incentives to provide a suboptimal quality of sponsored links. Competition among search engines can increase or decrease welfare, depending on the extent of multi-homing by advertisers. (JEL D43, D83, L13, L86, M37)
Publisher
American Economic Association
Subject
General Economics, Econometrics and Finance
Cited by
46 articles.
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