Influence of Search Neutrality on the Economics of Advertisement-Financed Content

Abstract

The recently raised search neutrality debate questions the ranking methods implemented by search engines: when a search is performed, do they (or should they) display the web pages ordered according to the quality-of-experience (relevance) of the content? In this paper, we analyze that question in a setting when content is offered for free, content providers making revenue through advertising. For content providers, determining the amount of advertising to add to their content is a crucial strategic decision. Modeling the trade-off between the revenue per visit and the attractiveness, we investigate the interactions among competing content providers as a non-cooperative game, and consider the equilibrium situations to compare the different ranking policies. Our results indicate that when the search engine is not involved with any high-quality content provider, then it is in its best interest to implement a neutral ranking, which also maximizes user perceived quality-of-experience and favors innovation. On the other hand, if the search engine controls some high-quality content, then favoring it in its ranking and adding more advertisement yields a larger revenue. This is not necessarily at the expense of user perceived quality, but drastically reduces the advertising revenues of the other content providers, hence reducing their chances to innovate.

Dynamics of the Hirschman–Herfindahl Index under New Market Entries

“…The HHI has been applied in a large number of markets: the banking system (Alegria and Schaeck, ), business journals (Swanson et al ., ), search engines (Sheu and Carley, ; Coucheney et al ., ), grocery retailers (Spicka, ), civil aviation (Lijesen et al ., ), the book industry (Greco, ; Chi, ), the food processing industry (Lopez et al ., ), telecommunications, media and the Internet (Noam, ; Noam, ; VV.AA., ; Naldi, 2016a,b), the retail gasoline market (Nowakowski and Karasiewicz, ), the newspaper industry (van Kranenburg, ) and even a company's own budget (Naldi et al ., ). Some criticism has been expressed in the context of the banking industry (Hannan, ; Alegria and Schaeck, ).…”

Non‐neutrality of search engines and its impact on innovation

“…The goal of the present paper is to use this model to illustrate how allowing rankings based on other features than just relevance could potentially hurt content innovation and investment incentives. A different aspect of nonneutrality of SEs was also investigated in Reference , namely the impact of an SE ranking policy on the strategy of content providers earning money from ads; the key assumption being that more advertisement leads to a lower quality perceived by users and therefore a potentially lower ranking by a neutral engine.…”