DP18639 Search Platforms: Big Data and Sponsored Positions
Search platforms that possess abundant consumer-specific information are ubiquitous in today's economy. We study a search platform's incentives to rank firms' products on their website in response to a consumer query taking the strategic incentives of both firms and consumers into account. Rankings are important to help consumers direct their search efforts and, as a result, affect firms' sales. We adapt tools from the social learning literature to characterize the platform’s optimal behavior if the number of firms to rank is large. If the platform’s objective is to maximize revenues from selling a sponsored position, then it fully obfuscates organic slots, while increasing the informational content of the sponsored slot. The welfare effect of sponsored positions crucially varies with the platform's additional objectives. For example, if the platform maximizes revenue earned from sponsored positions and sales commissions, then the consumer benefits from sponsored positions.
