Search

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Search
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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

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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

Store 1
Store 2
Purchase
Purchase
No
Info Gathering
Info Gathering
Yes
Yes
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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).

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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

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Search Costs

• Simultaneous search

Store 1
Info Gathering
Purchasing
Store 2
No
Store 3
Yes
Store 4
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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

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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

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Internet Search Market

• Efficiency of Search

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

• Some examples of inefficient search
• Some information relevant to selection is not
  available online

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Internet Search Market

• Some examples of inefficient search
• Relevant information is not accessible

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Internet Search Market

• Some examples of inefficient search
• Only some relevant information is accessible

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Internet Search Market

• Intermediation
• Issues with asymmetric information
• Quality screening (accuracy and availability of
  information)
• Reputation
• Congestion efficiency

VS.
Intermediary
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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

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Search Engines

• One example of a strange hit
• Searching hotbot for Pareto optimum

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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

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Search Engines

• How it works

Initial Set
Root Set
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Search Engines

• Form the so-called adjacency matrix for the
  links between pages
• aij1 if page i links to page j
• aij0 otherwise
• Example

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Search Engines

• Go to spreadsheet!