Search Quality and Revenue Cannibalisation by Competing Search Engines
Journal of Economics & Management Strategy, Forthcoming
Posted: 29 Aug 2008 Last revised: 5 Aug 2014
Date Written: March 6, 2012
Consumers are attracted by high quality search results. Search engines, though, essentially compete against themselves as consumers are induced to substitute away from advertisement links when their organic counterparts are of high quality. I characterize the effect of such revenue cannibalisation upon equilibrium quality levels when search engines compete for customer clicks. Revenue cannibalisation provides an incentive for quality degradation, engendering low quality equilibria even when quality provision is costless. When consumers exhibit search engine loyalty there is a ceiling above which result quality cannot rise, regardless of what the maximum technologically feasible quality happens to be.
Keywords: search engines, vertical differentiation, organic links, advertising, sponsored search
JEL Classification: D43, L13, L15
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