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Search Engine Competition With Network Externalities

Author

Listed:
  • Cédric Argenton
  • Jens Prüfer
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.

Suggested Citation

  • Cédric Argenton & Jens Prüfer, 2012. "Search Engine Competition With Network Externalities," Journal of Competition Law and Economics, Oxford University Press, vol. 8(1), pages 73-105.
    • Handle: RePEc:oup:jcomle:v:8:y:2012:i:1:p:73-105.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhr018
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    More about this item

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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