Search Engine Competition with Network Externalities

29 Pages Posted: 19 Apr 2011  

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration

Jens Prufer

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

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Jens Prufer

Tilburg University - CentER ( email )

P.O. Box 90153
Tilburg, DC 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

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