Information gatekeepers such as Internet search engines and shopbots play a crucial role in the information society. Recently, such gatekeepers have begun implementing a paid placement strategy, where some content providers are given, in return for a placement fee, prominent positioning in response to user queries. Generally, users have disutility toward the bias created by paid placement, and the search engine can manipulate the placement strategy to affect usersí disutility. We analyze the gatekeeperís tradeoff between revenue from paid placement and the potential loss in advertising revenue from the loss of credibility. In the optimal paid placement strategy, an increase in the gatekeeperís quality of service allows it to improve profits from paid placement, moving it closer to the ideal. However, an increase in the advertising rate motivates the gatekeeper to increase market share by reducing further its reliance on paid placement and fraction of paying providers. When there is competition between search engines of identical quality, they will choose the same bias level. For heterogeneous search engines with different qualities, the equilibrium outcome depends largely on the usersí cognitive or other limitations on the number of search results they effectively consider.
Bhargava, Hemant and Feng, Jane, "Information Gatekeepers: Paid Placement and Competition" (2002). ICIS 2002 Proceedings. 45.