In 2011, Andrew Rhodes wrote a paper entitled, Can Prominence Matter Even in an Almost Frictionless Market? He models consumer behaviour in frictionless markets and the role of search engines and their paid placement on the search results page. I have had a look at the article because I am the target of one of Lewisham Labour’s candidates for Mayor’s google ad-campaign. I look at what Rhodes did, and ask a couple of questions about how applicable his model and assumptions are.
Rhodes has a couple of consumer models; in the first he assumes that consumers know what they want, that what they want is uniquely fulfilled and what it’s worth to them but not who’s selling it. He assumes that the research is free because the search engines don’t charge their users but the opportunity cost of the time to research is real. He suggests that in this case, consumers research offers until they are satisfied they have the best match to their needs. He suggests that with a low search cost, consumers will conduct a thorough research; he suggests all vendors will be reviewed. He suggests that non-prominent firms use branding to win business at higher prices, but that advertising i.e. prominence delivers market share although with a lower price yet a higher volume of profit. In a variation of the model he examines the impact of consumers stopping when they find what they think they want. In this latter case, prominence helps the vendor. He also discusses cases internwhere the customer has lower knowledge of the market and where they know less about their preferences.
I don’t think he examines cases where individuals discriminate against adverts and look for high “Page Rank” pages which reach positions at the top of the page via recommendations (actually by an adjusted incoming link count).
His view of brand value doesn’t quite work for me, the use of search engine budgets to reinforce brand value is not examined.
Is there anything to learn for politicians? An understanding as to whether voters stop when they’ve found something they like, or whether they continue the research. In Lewisham Labour’s case, I like to think that those with strong research appetites, and in the words of the model who understand the value to them of the offers, will wait for the Hustings but who knows.
There is also the fact that unusually, the buyers collude in their research and have the social network resources to do so. Usually in politics, the ability of strongly aligned people to share with, or shout at their opponents is limited because the social graphs don’t cross the political divide; in the case of an internal selection they do. The graphs can be used for both persuasion and motivation. Search is no longer a monopoly source of information; the social network feeds are also highly relevant. One countervailing factor is that local fans with large social networks will be reaching large number of non-voters but it’s all near-zero marginal cost for them and their readers.
My question on whether people trust sponsored adverts as a trusted source of information is also important; I know I don’t.
Rhodes, Andrew, Can Prominence Matter Even in an Almost Frictionless Market? (November 2011). The Economic Journal, Vol. 121, Issue 556, pp. F297-F308, 2011. Available at SSRN: https://ssrn.com/abstract=1948942 or http://dx.doi.org/10.1111/j.1468-0297.2011.02465.x
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