How do sponsored links on search engines affect market competition ? Session 8 " TIC et Marché " du séminaire M@rsouin

, par Eric Darmon, Ludivine Martin, Michael A Arnold, Thierry Pénard

It is often claimed that entry costs are relatively lower for firms engaging in online

markets (either for pure players or for brick-and-mortar firms) than for those prevailing

in traditional markets. Thus, one critical issue is to be visible in order to attract a higher

number of customers and increase its market share. Beside word-on-mouth mechanisms,

one way to achieve a greater visibility is to pay for being favourably indexed by search

engines such as Google or Yahoo !. This gives birth to a competition among sellers for

being referenced by these intermediaries. In this paper, we study the impacts of this type

of competition on index and price strategies. Based on a dataset collected from two portals

(namely Google and Yahoo !), we first present some empirical evidences about keywords

competition. From that, we analyse such competition within a simple model of horizontal

differentiation. Two firms sell homogeneous products and consumers have a differentiated

ex ante perception of these two firms. Beyond ’organic results’, the two firms can choose

a strategy based on sponsored links to get a higher visibility. We consider the outcomes

(search strategy, price and market share outcomes) arising in a Stackelberg game where

the firms make their index strategy first and then compete in price.

Key words : sponsored links, search engines, Internet, advertising competition. Lire l’article complet