Near-monopoly search engine Google stagnates innovation

The current market of search engines does not stimulate market leader Google (above 90 percent market share in most European countries) to innovate enough. Search engines such as Google, Yahoo, and Bing, should share their data on clicking behavior of users to improve the quality of search results. This is the conclusion Cédric Argenton and Jens Prüfer from Tilburg University reached in their report ’Search Engine Competition with Network Externalities’.

The quality of a search engine depends on its algorithm and the knowledge a search engine acquires by analyzing the clicking behavior of its users. Each search query and selected result is registered and used to refine new search queries. The more a search engine is used, the smarter it becomes. In 2003 Google’s market share of 35 percent in the US was only slightly higher than Yahoo’s, but this small head start enabled Google to grow exponentially faster than its competitors. Yahoo and Bing are not able to catch up, despite their investments to improve the quality of the search process. Their innovations do not outweigh the larger amount of information gathered by Google. "At the moment Google is perceived to be the best search engine. This winning margin is rooted in the fact that Google has the most users and, consequently, can acquire the most information about what users really like. We do not know whether Google’s algorithm is better than its competitors", explains Prüfer.

Competition to fasten innovation
To see which search engine actually is the best, data on clicking behavior should be shared among search engines. If that is the case, competition will only be about the quality of the algorithm, which forces the companies to innovate in order to strengthen their competitive position. This 'competitive oligopoly' would lead to higher quality of search results and consumer surplus.

"Search engines play such a large role in our daily life, both private and business, that faster innovation can make a big difference", states Prüfer.

The US Department of Justice could take measures against the almost monopolistic market structure, alternatively the European Commission could. In a follow-up research project Argenton and Prüfer will look into the legal part of their proposal to share search data between search engines.

Google could adopt the proposal to share search data for two reasons: if there is a market intervention by an antitrust authority like the US Department of Justice or the European Commision, or to get data from its competitors and further increase the quality of its search engine as well (but relatively less than the quality of its competitors). In October 2010 Eric Schmidt, then CEO of Google, stated publicly that he was positive about sharing data when referring to the alliance of Bing and Facebook.



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