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Internet Search Engines and Two-sided Markets
Internet search engines provide a vital platform for various groups to interact and create value. On the one hand, they help users find answers to their search queries, and on the other, search engines monetise their free search services by selling advertisements to connect potential buyers with sellers. An exploration of the economics of search markets is presented along with a discussion about the economic literature on two (multi)-sided markets. There is also a discussion of issues with the developments in the antitrust case pertaining to Google in India.
The author thanks the anonymous referee for useful comments. The author gratefully acknowledges research support from Google. The opinions and analyses in this paper are entirely of the author’s. He would also like to thank Danny Sokol and an anonymous referee for comments on the previous version of this paper. Comments at the National Conference on Economics of Competition Law, 2016 are also gratefully acknowledged. A part of the manuscript was developed when the author was George C Lamb Fellow at Kenan Institute for Ethics at Duke University. Hospitality of the Kenan Institute is gratefully acknowledged.
In India, internet advertising is gaining significance with the number of internet users growing fast. As of 2013, internet users have increased by 31% over the previous year, with the total number of users crossing 150 million (Hindu 2013). It was estimated that India was likely to be the second largest market globally in terms of number of internet users by 2016, just behind China (Financial Times 2014). With such a growth rate, it can be expected that the role of online advertising is set to be significant in India in the foreseeable future. Starting with the first clickable advertisement that came out in Hotwired in 1994, the online advertisement industry has grown to become a significant player in the media advertising industry. In 2015, global internet advertising expenditure was estimated to have reached more than $120 billion, around 25% of the total advertising spends, including mobile advertising (Lunden 2014). Advertisers use the internet to reach consumers in many ways, including display advertisements (shown on websites that a user visits) and search advertisements (where advertisements correspond to a search query the user had entered). Search advertisements are used by general search providers like Google, Yahoo, Bing, and others as well as specialty providers like Amazon (shopping) or Expedia (travel) and accounted for 45% of the overall internet advertising market in 2014 (Lunden 2014).
In this context, the Competition Commission of India’s report suggesting that Google indulged in certain anti-competitive practices, becomes relevant (Gupta 2015). Briefly, the main contentions are as follows: Google is alleged to have a dominant position in the search engine market because it is the most used search engine in India. Further, it is also alleged that Google has abused that dominant position by promoting its other products (built-in services) through its search engine such as maps, shopping, etc. Such promotion has supposedly denied competitors in these built-in services markets a chance to compete because Google’s products appear when a searcher searches for those services. In order to comprehend these allegations from an antitrust perspective, it is important to understand how firms compete in markets like these that are characterised by fast and ever-changing technology. As the United States Federal Trade Commission has pointed out, “Technology industries are notoriously fast-paced, particularly industries involving the Internet. Poor or misguided antitrust enforcement action in such industries can have detrimental and long-lasting effects” (Ohlahausen 2013).
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