Monopoly Power on the Web - A Preliminary Investigation of Search Engines

Abstract

E-Commerce challenges traditional approaches to assessing monopolistic practices due to the rapid rate of growth, rapid change in technology, difficulty in assessing market share for information products like web sites, and high degree of interconnectivity and alliance formation among corporations. This paper has provided a fundamental framework that integrates a network and economic perspective to the search engine market. The findings indicate that (1) despite an increasing number of search engines, barriers to entry seem high, largely due to the exponential growth in the number of web sites and the non-scalability of the current search technology and collective switching costs; (2) older search engine sites tend typically to have more features to lock in users. Using standard economic indicators (CR4=58% and HHI=1163), the industry looks close to being plagued by anticompetitive practices. But based on a network adjusted HHI constructed in this paper, its value, 870, suggests that there is less cause for concern. Based on all indicators, it suggests that Yahoo would be a contender. Other possible contenders are MSN and Netscape. On the basis of results to date, some search engines keep increasing their audience reach while others don't. The trend shows that some search engines may dominate the search engine market. We suggest conducting research in the coverage performance of search engines and investigate "information search cost" as a performance indicator of search techniques. In addition, we suggest paying attention to any anticompetitive conduct (e.g. product bundling) that may lesson competition and reduce consumer welfare. The combination of network theory and economic theory to study the search engine market is a particularly powerful approach for E-Commerce.