An Oligopoly Two-Stage-Game Model for Investigating the Search Engine Market

This paper shows that characteristics of competitive oligopoly exist in the search engine market by analyzing market shares. We put forward a novel optimization model, named as an oligopoly two-stage-game (OTSG) model in this paper. The model is based on Stackelberg and Cournot models. The model is proposed to maximize the profit of search engine platforms. Combining game theory and economic analysis, the strategies of optimal pricing and advertising quantity for search engine platforms have been investigated at different cost functions. According to the monopoly characteristics in the market, the proposed model considers followers entering and demand elasticity factors. The equilibrium between price and advertising quantity is deduced. The impact of demand elasticity on price and advertising quantity is analyzed in the OTSG model. Furthermore, the relation between the demanded advertising quantity and the remaining adverting quantity is shown in the second stage market. Finally, the simulation results show that Nash equilibrium exists in the second stage market.