Working Paper: NBER ID: w28091
Authors: Michael Ostrovsky
Abstract: Choice screen auctions have been recently deployed in 31 European countries, allowing consumers to choose their preferred search engine on Google's Android platform instead of being automatically defaulted to Google's own search engine. I show that a seemingly minor detail in the design of these auctions—whether they are conducted on a “per appearance” or a “per install” basis—plays a major role in the mix and characteristics of auction winners, and, consequently, in their expected overall market share. I also show that “per install” auctions distort the incentives of alternative search engines toward extracting as much revenue as possible from each user who installs them, at the expense of lowering the expected number of such users. The distortion becomes worse as the auction gets more competitive and the number of bidders increases. Empirical evidence from Android choice screen auctions conducted in 2020 is consistent with my theoretical results.
Keywords: choice screen auctions; search engines; digital platforms; competition policy
JEL Codes: C72; D44; D47; K21; L40; L50; L86
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Auction format (D44) | Incentives of competing search engines (D43) |
| Incentives of competing search engines (D43) | Revenue extraction vs. user acquisition (D26) |
| Revenue extraction vs. user acquisition (D26) | Probability of alternative search engines being chosen (C11) |
| Auction format (D44) | Expected popularity of search engines (D83) |
| Competition increases (L13) | Distortion of incentives (H31) |