Search Advertising

Mar 2013 | 649

Authors: Alexandre de Corniere

Search engines enable advertisers to target consumers based on the query they have entered.  In a framework with horizontal product differentiation, imperfect product information and in which consumers incur search costs, I study a game in which advertisers have to choose a price and a set of relevant keywords.  The targeting mechanism brings about three kinds of efficiency gains, namely lower search costs, better matching, and more intense product market price-competition.  A monopolistic search engine charges advertisers too high a price, and has incentives to provide a suboptimal matching quality.  Competition among search engines eliminates the latter distortion, but exacerbates the former.

JEL Codes: D43, D83, L13, M37

Keywords: Search engine, targeted advertising, consumer search

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