Search Engine Competition with Network Externalities

29 Pages Posted: 19 Apr 2011

See all articles by Cédric Argenton

Cédric Argenton

Tilburg University - Tilburg University School of Economics and Management; Tilburg Law and Economics Center (TILEC)

Jens Prufer

Tilburg University; Tilburg University - Department of Economics; Tilburg University - Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: April 13, 2011

Abstract

The 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.

Keywords: Search engines, network externalities, query logs, antitrust, regulation

JEL Classification: L10, K23, L86

Suggested Citation

Argenton, Cédric and Argenton, Cédric and Prufer, Jens, Search Engine Competition with Network Externalities (April 13, 2011). TILEC Discussion Paper No. 2011-024, Available at SSRN: https://ssrn.com/abstract=1808624 or http://dx.doi.org/10.2139/ssrn.1808624

Cédric Argenton (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jens Prufer

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Tilburg University - Department of Economics ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,026
Abstract Views
6,470
Rank
31,949
PlumX Metrics