Web sites invest significant resources in trying to ininfluence their visibility among onlinesearch results. In addition to paying for sponsored links, they invest in methods known assearch engine optimization (SEO). We study the economic incentives of Web sites to investin SEO and its implications on visitor satisfaction and welfare. Our focus is on methods thatimprove rankings of sites among search results without improving their quality. We find thatthe process is equivalent to an all-pay auction with noise and headstarts. Our results showthat in equilibrium, under certain conditions, some positive level of search engine optimizationimproves the search engine's ranking and thus the satisfaction of its visitors. In particular, ifthe quality of sites coincides with their valuation for visitors then search engine optimizationserves as a mechanism that improves the ranking by correcting measurement errors. Whilethis benefits consumers and search engines, sites participating in search engine optimizationcould be worse o unless their valuation for traffic is very high. We also investigate howsearch engine optimization affects investment by sites in content and find that it can lead tounderinvestment as a result of wasteful spending on search engine optimization.
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