The Market Structure for Internet Search Engines.

Author List: Telang, Rahul; Rajan, Uday; Mukhopadhyay, Tridas;

Journal of Management Information Systems, 2004, Volume 21, Issue 2, Page 137-160.

The Internet search engine market has seen a proliferation of entrants over the past few years. Whereas Yahoo was the early market leader, there has been entry by both lower-quality engines and higher-quality ones (such as Google). Prior work on quality differentiation requires that low-quality products have low prices in order to survive in a market with high-quality products. However, the price charged to users of search engines is typically zero. Therefore, consumers do not face a tradeoff between quality and price. Why do lower-quality products survive in such a market? We develop a vertical differentiation model that explains this phenomenon. The quality of the results provided by a search engine is inherently stochastic, and there is no charge for using an engine. Therefore, users who try out one engine may consult a lower-quality engine in the same session. This "residual demand" allows lower-quality products to survive in equilibrium. We then extend our model to incorporate horizontal differentiation as well and show that residual demand leads to higher quality and less differentiation in this market. Engines want to attract competitors' customers and therefore have a strong incentive to be "similar" to each other.

Keywords: e-commerce; market structure; product differentiation; residual demand; search engines

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List of Topics

#242	0.349	market competition competitive network markets firms products competing competitor differentiation advantage competitors presence dominant structure share using incumbent make important
#217	0.219	search information display engine results engines displays retrieval effectiveness relevant process ranking depth searching economics create functions incorporate low terms
#5	0.137	consumer consumers model optimal welfare price market pricing equilibrium surplus different higher results strategy quality cost lower competition firm paper
#23	0.076	channel distribution demand channels sales products long travel tail new multichannel available product implications strategy allows internet revenue technologies times
#278	0.068	website users websites technostress stress time online wait delay aesthetics user model image elements longer waiting appeal attract utility internet
#115	0.063	quality different servqual service high-quality difference used quantity importance use measure framework impact assurance better include means van dimensions assessing