3 - Horizontal Search

Summary

This chapter explains why horizontal (or general purpose) search should be seen as a natural monopoly. First, it shows that a horizontal search like Google Search is characterized by a cost structure with high fixed costs and very low marginal costs on the supply side, as well as extensive economies of scale generated by data that increase the efficiency of search results in terms of quality-adjusted costs. This chapter then discusses the regulatory implications arising from the natural monopoly framework, including the ability to exercise market power both on the searchers and advertisers’ side, and inventives to leverage market power through discriminatory behavior in vertically related markets.