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Search 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

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  1. Search

  2. 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

  3. 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

  4. 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).

  5. 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

  6. Search Costs • Simultaneous search Store #1 Info Gathering Purchasing Store #2 No Store #3 Yes Store #4

  7. 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

  8. 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

  9. 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

  10. Internet Search Market • Some examples of inefficient search • Some information relevant to selection is not available online

  11. Internet Search Market • Some examples of inefficient search • Relevant information is not accessible

  12. Internet Search Market • Some examples of inefficient search • Only some relevant information is accessible

  13. Internet Search Market • Intermediation • Issues with asymmetric information • Quality screening (accuracy and availability of information) • Reputation • Congestion efficiency VS. Intermediary

  14. 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

  15. Search Engines • One example of a strange hit • Searching hotbot for “Pareto optimum”

  16. 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

  17. Search Engines • How it works Initial Set Root Set

  18. Search Engines • Form the so-called “adjacency matrix” for the links between pages: • aij=1 if page i links to page j • aij=0 otherwise • Example:

  19. Search Engines • Go to spreadsheet!

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