Search Engines: Alexandre de Corniere Simon P. Anderson University of Virginia Discussion.

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Search Engines: Alexandre de Corniere Simon P. Anderson University of Virginia Discussion

Discussion outline Very clean, elegantly done, clear Several extensions – ready to ship Overview Random serving up of surfers? (obfuscation) Minor comments Future directions

Model backdrop Circle for products and consumers (continua) Optimal consumer search as a stopping rule Hence no point in advertiser paying a if won’t stop leads to (restricted) optimality result: search costs minimized (one search) Defines the advertiser width per consumer Then find the (monopoly – all stop) product price (no discrimination) over the disparate consumers Search engine serves up advertisers at random But, (when) is uniform distribution optimal?

Tensions in engine (platform) pricing Classic two-sided market balance: revenue per viewer times number of viewers Here though there is only one click per viewer (only one advertiser pays) Still deliver up eyeballs by rendering attractive the expected package Need here to temper Diamond Paradox by including some less desirable matches Still monopoly pricing (not price competition), but affecting demand elasticity

Google’s secret sauce What should be served up? Not just the ideal match! Then price is reservation value of highest valuation consumer. Zero surplus, so no-one clicks. Instead of uniform, what probability distribution is optimal for engine? More density on ends? Reduces price, but worse matches Bruestle (UVA): serving up the “wrong” eyeballs So, find the algorithm! (not too hard?) Reminiscent of threshold match (AR, AER ‘06) – tell enough, but not too much

Minor points A3 should be (1-F) log-concave Caplin and Nalebuff (1989); Anderson, de Palma, Nesterov (1985)

Random serving assumption Would the engine profit from a different algorithm? Serve up the best? (what would happen? – Diamond paradox?) Maybe not … Bruestle (UVA: “serving up the wrong eye-balls”) Similar ingredients; but serving up some “wrong” surfers How it works: full-fledged 2-sided market logic: get more surfers on-board (to deliver to discipline prices)