Keywords, Limited Consideration, and Organic Product Listings: A Duopoly Model

Abstract

This paper theoretically investigates the competitive effects of digital keyword search (DKS) in an organic (unsponsored) search market. In the model, sellers can decide which keyword(s) to include in their product listings (a common, but normally unmodeled real-world decision), while consumers only consider buying from sellers whose listings are revealed by their searched keyword(s). The analysis focuses on two structural changes brought about by DKS, wider listing and wider querying, which refer (respectively) to the ways in which DKS makes it easier for sellers to index their listings to multiple keywords and for consumers to search multiple keywords. According to the analysis, wider listing expands the market, lowers prices, and increases consumer surplus, with ambiguous effects on profits. “Slightly wider” querying reinforces these effects, but “much wider” querying can lead sellers to strategically omit a relevant keyword from their listing, undoing the effects of wider listing on sales, prices, consumer surplus, and profits. New implications concerning the interaction of sellers’ pricing and keyword-selection decisions, their dependence on various platform-specific characteristics, and the effects of “autocategorization” algorithms are also addressed.