Handbook of Media Economics, vol 1A

implies that the continuation value of searching is higher for consumers, inducing a

downward pressure on prices. By contrast, without targeting, a firm cannot adjust its

advertising strategy D along with its equilibrium price P . The per-click-price is therefore

considered a fixed cost and is not passed through into the final good price.

60

As a con-

sequence, the overall effect is ambiguous, and

de Cornie

`

re (2013) shows that targeting

can lead to a welfare loss.

Another important question regards the incentive of the search engine to choose the

most relevant ads after a consumer has entered a keyword. To this end, suppose that the

search engine can choose the value of accuracy of its search results by choosing D itself.

So, the search engine has