Search advertising

Working paper

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.

Authors: de Corniere, A

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2013-03-20
• Paper number: 649
• Keywords: search engine; targeted advertising; consumer search