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Search Advertising

Author

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  • Alexandre de Cornière

Abstract

Search engines enable advertisers to target consumers based on the query they have entered. In a framework in which consumers search sequentially after having entered a query, I show that such targeting reduces search costs, improves matches and intensifies price competition. However, a profit-maximizing monopolistic search engine imposes a distortion by charging too high an advertising fee, which may negate the benefits of targeting. The search engine also has incentives to provide a suboptimal quality of sponsored links. Competition among search engines can increase or decrease welfare, depending on the extent of multi-homing by advertisers.

Suggested Citation

  • Alexandre de Cornière, 2016. "Search Advertising," American Economic Journal: Microeconomics, American Economic Association, vol. 8(3), pages 156-188, August.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:3:p:156-88
    Note: DOI: 10.1257/mic.20130138
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jidong Zhou, 2020. "Improved Information in Search Markets," Cowles Foundation Discussion Papers 2264R, Cowles Foundation for Research in Economics, Yale University, revised Jun 2022.
    2. Henk Kox & Bas Straathof & Gijsbert Zwart, 2017. "Targeted advertising, platform competition, and privacy," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 557-570, September.
    3. Saara Hämäläinen & Vaiva Petrikaitė, 2024. "Prediction algorithms in matching platforms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(3), pages 979-1020, November.
    4. Yangguang Huang, 2021. "Search Algorithm and Sales on Online Platforms: Evidence from Food Delivery Platforms," HKUST CEP Working Papers Series 202101, HKUST Center for Economic Policy.
    5. Zemin(Zachary) Zhong, 2016. "Targeted Search and Platform Design," Working Papers 16-03, NET Institute.
    6. Roberto Burguet & Vaiva Petrikaitė, 2023. "Targeted advertising and costly consumer search," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 430-450, April.
    7. Fujisawa, Chieko & Kasuga, Norihiro, 2021. "How should durable goods firms combine online and mass media advertisements to promote sales?," 23rd ITS Biennial Conference, Online Conference / Gothenburg 2021. Digital societies and industrial transformations: Policies, markets, and technologies in a post-Covid world 238023, International Telecommunications Society (ITS).
    8. Gregor Langus & Vilen Lipatov, 2022. "Value Creation by Ad-Funded Platforms," CESifo Working Paper Series 9525, CESifo.

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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