Search Engine Dominance and Quality of Organic Search: Consequences for Online Advertising

In this dissertation work we study in which way an Internet search engine can lower the quality (score) of the organic links, and how it will affect the probability of the high quality website to get a high position in the organic search results. We investigate the impact of such organic search results manipulation on advertisers’ strategies, search engine’s profits, and consumer welfare. We find that when organic link quality becomes too high, a search engine can face the cannibalisation problem when consumers prefer to click on organic links first and consequently satisfy their needs, rather than click on sponsored links – revenue source for the search engine. Thus, a search engine starts reducing organic link quality that reflects in lower consumer surplus. According to the performed analysis, investment in paid placement gives a guarantee that the website will be visited at least on the sponsored site. Modelling the impact of search engine’s organic search results manipulation on the advertisers’ optimal search engine marketing strategies reveals that, facing the downward pressure on the organic rank, at least one advertiser will invest in paid placement.