Pricing Paid Placements On Search Engines

The objective of this research is to identify the optimal pricing strategy for paid placements on search engines' "Search-results" listings. To accomplish this, the authors develop a mathematical model incorporating a constellation of parameters that describe buyers' online search intensity, competition among online sellers, and co-opetition between the online sellers and search engine. This model allows the authors to analyze three pricing strategies, namely Pay-Per-Purchase (PPP), Pay-Per-Click (PPC), and Flat-Fee (FF), for paid placement services. The paper then compares these pricing strategies in terms of their revenue potential for a search engine and identifies conditions when one pricing strategy is preferred over the other.