Model of Search Engines' Revenue Problem

Consider a search engine which offers indexing and retrieval services over a virtual library of aggregated content from multiple content providers, and presents an ordered list of results in response to a user's query term. In developing an economic model of search engines, we consider three types of entities: users of search engines, content providers, and third-parties such as advertisers and licensing firms. The search engine serves a market of users who are heterogeneous in their preferences. Let 1#1 represent user types in a descending order of users valuation for the searching service, and let qrepresent quality of the search engine as perceived by users, which may be a composite measure of its database of content providers, user interface, and indexing and retrieval algorithms. We write 2#2 to denote the value to a type-3#3user for a given quality q. For convenience we assume that 3#3 is uniformly distributed in the interval [1, 2]. We consider q to be exogenously specified in the period of interest. The search engine benefits content providers by directing users to their sites. Content providers are also heterogeneous in their profit expectations. Let 4#4 represent a descending order of provider types, where (for convenience) 5#5is uniformly distributed in [1, 2].