Search Algorithm, Repetitive Information, and Sales on Online Platforms
A prominent feature of online sales is that buyers rely on the search tools offered by platforms to process information when searching for products. The authors develop a model that captures how the search algorithm affects buyers' search processes, which further influences market equilibrium and welfare. If a platform adopts a highly unequal search algorithm, buyers are likely to obtain repetitive information about a small group of sellers, which causes buyers to consider fewer options and suppresses competition. By using data from food delivery platforms, they provide empirical evidence that markets with less equal distributions of store rankings in search results have higher average prices and more concentrated sales. They suggest that regulators should restrict search algorithms from showing repetitive information.
Published at International Journal of Industrial Organization on 15 February 2023.