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The Role of Keyword Advertising in Competition among Rival Brands

 |  October 26, 2012

Posted by D. Daniel Sokol

David S. Evans (University of Chicago, University College London, Global Economics Group) and Elisa V. Mariscal (Centro de Investigación y Docencia Economica, Competition Policy International, Instituto Tecnológico Autónomo de México) discuss The Role of Keyword Advertising in Competition among Rival Brands

ABSTRACT: This paper considers recent proposals for restricting keyword advertising using competitor brand names. Keyword advertising is similar to many other widely used and valuable methods of marketing to the customers of rivals that increase competition and facilitate entry. Queries for products or services using search engines help inform consumers about other competitive alternatives and may enable them to compare different product offerings. Economists have found overwhelmingly that this type of informative and comparative advertising benefits consumers and, conversely, that restricting such advertising harms consumers. Complainants in some recent keyword advertising cases have sought to forbid search engines from using trademarked names as keywords, claiming that this may cause confusion. We argue that most consumers are likely to benefit from keyword advertising and are unlikely to be confused by the practice. Moreover, without a careful weighing of the likely costs and benefits of this type of regulation, consumers might bear significant costs by eliminating an easy reference with which to compare existing or new products, resulting in important reductions in consumer benefits. In fact, even more narrow remedies such as case-specific penalties for causing consumer confusion could discourage search engines from offering this service to advertisers, decreasing their value to consumers as a search tool and resulting in significant harm.