Alexandre de Corniere
University of Oxford
June 18, 2013
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 targeting reduces search costs, improves matches and intensifies price competition. However, a profit-maximizing 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 downstream market structure.
Number of Pages in PDF File: 32
Keywords: search engine, targeted advertising, consumer search
JEL Classification: D43, D83, L13, M37
Date posted: December 2, 2011 ; Last revised: August 19, 2014
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