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Search Engine Competition

Feb 14, 2011 • Businesses, Demand, Supply, and Markets • 94 Views    No Comments

Reading about Lillian Virginia Mountweasel in the 1975 edition of the New Columbia Encyclopedia, you would have discovered that she, a fountain designer and rural mailbox photographer, died in an explosion when working for Combustibles magazine. 

But she really didn’t.

Mountweasel was a fake entry.

Encyclopedias, dictionaries and search engines use an occasional bogus entry to identify copycats. Columbia, for example, knew that any other encyclopedia with Mountweasel had lifted the info from them because it existed nowhere else. Similarly, Google has just accused Microsoft’s Bing of a copycat offense. Using the fake search term, “Hiybbprqag,” Google says that Bing was guilty of what we could call search engine plagiarism. In response, Microsoft pleads, “Not guilty.”

On a different front, Google is facing competition from smaller search engines with niche specialties.

The Economic Lesson

As economists, we can look at how firms compete. With only a few large firms providing search answers to many millions of queries, the search engine market structure is oligopoly. One way in which oligopolies compete is product differentiation. Any copycat activity challenges their ability to differentiate.

Along a continuum of market structures, we can list four benchmarks. At the far left is perfect competition with many firms, identical products such as potatoes and broccoli, many consumers, and a market that determines price. Next, to the right, is monopolistic competition where firms have a bit more power. Supermarkets and beauty salons are examples of firms in monopolistically competitive markets. Then comes oligopoly and firms with a lot of power to affect price. Kellogg’s Cereals, Coca-Cola, and pharmaceutical firms are oligopolies. Finally, at the far right is monopoly, where one firm controls the market.

Are the newer, smaller search engines changing Google’s market structure?

 

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