Friday, August 28, 2009
Posted by D. Daniel Sokol
Dan Spulber of Northwestern University Kellog School of Business has posted The Map of Commerce: Internet Search, Competition, and the Circular Flow of. Information.
ABSTRACT: Search firms provide matchmaking services between consumers and suppliers that are central to the efficiency of the economy. The significant economic contributions of search firms as commercial intermediaries have important implications for antitrust policy towards search markets. As search firms generate more information about buyers and sellers, they become intermediaries for an increasing proportion of economic transactions. This article introduces the concept of the "map of commerce" to describe the extensive directory of business constructed by search firms. This article also introduces the concept of the "circular flow of information" to represent the comprehensive nature of the economic information managed by search firms. These firms induce information revelation through self-selection both by consumers and by advertisers. Consumers reveal personal information through the use of keywords and through their online behavior. Advertisers reveal company information by bidding on positions on the search page. Search firms employ information to match buyers with sellers more effectively and to increase earnings from advertising. The analysis shows that economic efficiencies generated by the circular flow of information depend on the strength of competition among search firms. The discussion considers antitrust policy towards Internet search markets, including issues of privacy, competition, and cooperative agreements.