Search Engines: Left Side Quality Versus Right Side Profits

Abstract

Search engines face an interesting tradeoff in choosing the way to display their results. While providing high quality unpaid, or “left side” results attracts users, doing so can also cannibalize the revenue that comes from paid ads on the “right side”. This paper examines this tradeoff, focusing, in particular, on the role of users’ post-search interaction with the websites whose links are displayed. In the model, high quality left side results boost demand from users, causing them to tolerate a search engine on which advertisers do not offer the lowest possible prices for the goods that they sell. However, because websites appearing on the left side still have an incentive to compete in the same market as advertisers, an increase in quality on the left side may reduce advertisers’ equilibrium prices. I analyze the circumstances under which this will occur and discuss the model’s potential implications for antitrust policy.

Keywords: Search Engines, Economics of the Internet, Two-sided Markets, Monopolist Quality Choice, Media Bias

JEL Classification: D21, D42, D43, D83, L12, L13, L40