Beef up Your Competitor: A Model of Advertising Cooperation between Internet Search Engines

Geza Sapi () and Irina Suleymanova

No 870, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We propose a duopoly model of competition between internet search engines endowed with different technologies and study the effects of an agreement where the more advanced firm shares its technology with the inferior one. We show that the superior firm enters the agreement only if it results in a large enough increase in demand for advertising space at the competing .rm and a relatively small improvement of the competitor's search quality. Although the superior firm gains market share, the agreement is beneficial for the inferior firm, as the later firm's additional revenues from a higher advertising demand outweigh its losses due to a smaller user pool. The cooperation is likely to be in line with the advertisers' interests and to be detrimental to users' welfare.

Keywords: Search Engine; Two-Sided Market; Advertising; Strategic Complements; Technology (search for similar items in EconPapers)
JEL-codes: L13 L24 L86 M37 (search for similar items in EconPapers)
Pages: 29 p.
Date: 2009
New Economics Papers: this item is included in nep-com, nep-ict, nep-ind, nep-mic and nep-mkt
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https://www.diw.de/documents/publikationen/73/diw_01.c.96514.de/dp870.pdf (application/pdf)

Related works:
Journal Article: Technology Licensing by Advertising Supported Media Platforms: An Application to Internet Search Engines (2011)
Working Paper: Technology licensing by advertising supported media platforms: An application to internet search engines (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp870

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