Search Engine Advertising: Pricing Ads to Context

Networks, the Internet, and Cloud Computing, Internet and Search and Advertising

Article Snapshot

Author(s)

Avi Goldfarb and Catherine Tucker

Source

NET Institute Working Paper #07-23, 2007

Summary

This paper considers competition in online advertising markets.

Policy Relevance

Google is merging with its competitor Doubleclick, potentially raising issues under competition law. However, if different types of advertising compete with one another, there might be more competitors in advertising that it first appears. Our papers uses an experiment with lawsuit-related keywords to look at online ads competing with more direct marketing.

Main Points

  • Lawyers who are banned from “ambulance-chasing” can contact potential clients in some states, but not in others.

  • In states with a ban, search engines like Google can charge slightly more for advertising.

  • This suggests that different types of advertising like online ads and more direct marketing compete with one another.

  • In assessing competition in online advertising markets, it makes sense to use a broad market definition that includes several types of advertising.

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