SEARCH ENGINE COMPETITION WITH NETWORK EXTERNALITIES

Cédric Argenton and Jens Prüfer

Journal of Competition Law and Economics, 2012, vol. 8, issue 1, 73-105

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 of 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 well the empirically observed developments since 2003. We find that there is a strong tendency toward 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.

JEL-codes: K23 L10 L86 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:8:y:2012:i:1:p:73-105.

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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