Advertising, Search and Intermediaries on the Internet: Introduction

Abstract

I wonder how many times you have already used a search engine, a price comparison website or a social networking site today? Such online intermediaries gain much of their revenue by offering advertising positions within their search results or on their websites. This form of advertising has evolved into a huge industry. The enterprise value of Google, for example, is now close to $140 billion.1 But far more than being just a big business, advertising within online intermediaries is fundamentally changing the way in which firms compete by altering how consumers search for information about products and prices. Such changes prompt many policy questions, but these questions can only be answered once economists have a better theoretical understanding of the complex interrelationship between intermediaries, firms and consumers. This feature aims to develop that understanding further. In particular, the five articles investigate how firms compete to pay an online intermediary for advertising slots, how consumers use the intermediary’s information within their search behaviour and how this, in turn, affects firms’ pricing decisions.