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Market Dominance and Quality of Search Results in the Search Engine Market

CLES Working Paper Series 2/2012

39 Pages Posted: 18 Oct 2012  

Ioannis Lianos

University College London - Faculty of Laws; HSE-Skolkovo Laboratory for Law and Development

Evgenia Motchenkova

VU University Amsterdam - Department of Economics; TILEC

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2012

Abstract

We analyze a search engine market from a law and economics perspective and incorporate the choice of quality improving innovations by a search engine platform in a two-sided model of internet search engine. In the proposed framework we first discuss the legal issues the search engine market raises for antitrust policy through analysis of several types of abusive behavior by the dominant search engine. We also explore the possible consequences of monopolization of the search engine market for advertisers and users in the form of excessive pricing and deterioration of the quality of the search results. Second, in the technical analysis part we incorporate these considerations in a two-sided market model and analyze the rate of innovation, pricing, and quality choices by the dominant search engine. Our findings show that a dominant monopoly platform results in higher prices and under-investment in quality improving innovations by a search engine relative to the social optimum. More generally, we show that monopoly is sub-optimal both in terms of harm to advertisers in the form of excessive prices, harm to users in the form of reduction in quality of search results, as well as harm to the society in the form of lower innovation rates in the industry.

Keywords: Antitrust Enforcement, Search Engine, Two-sided Markets, Innovation

JEL Classification: K21, L10, L41, L50, L86, L88

Suggested Citation

Lianos, Ioannis and Motchenkova, Evgenia, Market Dominance and Quality of Search Results in the Search Engine Market (October 1, 2012). CLES Working Paper Series 2/2012. Available at SSRN: https://ssrn.com/abstract=2163244 or http://dx.doi.org/10.2139/ssrn.2163244

Ioannis Lianos (Contact Author)

University College London - Faculty of Laws ( email )

London
United Kingdom

HSE-Skolkovo Laboratory for Law and Development ( email )

8 Pokrovski Boulevard
Moscow, 109028
Russia

Evgenia Motchenkova

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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