Working Paper: CEPR ID: DP18639
Authors: Maarten Janssen; Thomas Jungbauer; Marcel Preuss; Cole Williams
Abstract: Search platforms that possess abundant consumer-specific information are ubiquitous in today's economy. We study a search platform's incentives to rank firms' products on their website in response to a consumer query taking the strategic incentives of both firms and consumers into account. Rankings are important to help consumers direct their search efforts and, as a result, affect firms' sales. We adapt tools from the social learning literature to characterize the platform’s optimal behavior if the number of firms to rank is large. If the platform’s objective is to maximize revenues from selling a sponsored position, then it fully obfuscates organic slots, while increasing the informational content of the sponsored slot. The welfare effect of sponsored positions crucially varies with the platform's additional objectives. For example, if the platform maximizes revenue earned from sponsored positions and sales commissions, then the consumer benefits from sponsored positions.
Keywords: search; digital platforms; auctions
JEL Codes: D40; D83; L10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Sponsored positions (Z23) | Consumer search behavior (D12) |
| Sponsored positions (Z23) | Firm sales (L21) |
| Platform's decision to obfuscate organic results (D26) | Consumer search behavior (D12) |
| Platform's decision to obfuscate organic results (D26) | Firm sales (L21) |
| Revenue from sales commissions and auctioning sponsored slots (D44) | Obfuscation of organic positions (L29) |
| Platform's objectives (L21) | Consumer welfare effects of sponsored positions (L49) |