1. Search

2. Search and Economics Search is ubiquitous –Money as a search efficiency Eliminates double coincidence of wants in search for barter exchange –Job search Matching of individual abilities with firm labor needs –Product search and shopping Price dispersion and location –Research and development as a search activity Proprietary versus open source

3. Search Costs Sequential search –At each step of the search process, the consumer incurs an additional search cost (general in terms of disutility of time spent searching) –Given this cost, consumer must decide whether to purchase at the price quoted by the store, or whether to continue searching, incurring the search cost Info Gathering Purchase Info Gathering Purchase Yes No Store #1Store #2

4. Search Costs Example –Alice faces search costs of $1 to travel to each store –At store #1, Alice is quoted the price of $10 for a blouse If she purchases from store #1, her total cost (including the search cost) is $11 –Suppose Alice decides not to purchase and instead goes to store #2. –At store #2, she is quoted a price of $9.50 for the same blouse If she purchases the blouse here, her total cost will be $11.50 (since she incurs total search costs of $2 -- $1 to visit the first store and $1 to visit the second store).

5. Search Costs –Issue of repeated versus one-time purchases Market with continual inflow of new, uninformed buyers, will lead to prices at the monopoly level Market in which buyers visit firms repeatedly lead to reduced search costs as buyers learn about individual stores’ pricing practices Explains why prices at “tourist traps” are significantly higher than in markets which serve regular customers –Location issues In a linear market, stores near the parking lot can charge higher prices by virtue of their location

6. Search Costs Simultaneous search Store #1 Store #2 Store #3 Store #4 Purchasing Info Gathering No Yes

7. Search Costs –Simultaneous search involves collecting information from a number of different sources at one time, and then evaluating this information simultaneously. –Parallel evaluation –Example: Open-source software development as a search and discovery process –Costs of simultaneous search stem from the need to organize the evaluation process to make comparisons of complex information –Related cost of determining what to deliver when a simultaneous search is requested

8. Internet Search Market Components –Content Providers Primary information content provided by sellers about products Available in digital and non-digital forms Primary sources: company web sites, advertising Secondary sources: bot-generated indices and evaluation databases –Selection Processes Information queries Interactive vs. non-interactive –Information Access Connecting to the web sites and retrieving useful information

9. Internet Search Market Efficiency of Search Content provided in physical market Content available on the internet Relevant information selected and categorized Accessed and retrieved information

10. Internet Search Market Some examples of inefficient search –Some information relevant to selection is not available online

11. Internet Search Market Some examples of inefficient search –Relevant information is not accessible

12. Internet Search Market Some examples of inefficient search –Only some relevant information is accessible

13. Internet Search Market Intermediation –Issues with asymmetric information Quality screening (accuracy and availability of information) Reputation –Congestion efficiency VS. Intermediary

14. Search Engines First generation search engines –Keyword indices –Associated hyperlinks for access –Possibility of including synonyms –Ranking of results based on keyword repetition Inadequacies –Index incompleteness –Vulnerability to spamming –Cost of maintaining and updating –Imperfect correlation of keywords and relevant topics

15. Search Engines –One example of a strange hit Searching hotbot for “Pareto optimum”

16. Search Engines Second-generation search engines –Search algorithm based on citation analysis –Classification scheme based on analysis of hyperlinks Web sites are classified as authorities or hubs Authorities are sites that many other sites link to Hubs are sites that link to many other sites Algorithm begins by using keyword search to generate a set of initial authorities For set of authorities, search process looks at sites that point to these authorities and classify them as a good set of initial hubs For these hubs, the search process then refines the set of authorities by looking at the sites the hubs point to the most Google

17. Search Engines How it works Initial Set Root Set

18. Search Engines Form the so-called “adjacency matrix” for the links between pages: –a ij =1 if page i links to page j –a ij =0 otherwise Example:

19. Search Engines Go to spreadsheet!