If you’ve taken some basic economics, you know that the perfect competitive market equilibrium that economists love so much can be thrown off by a few things, including imperfect information. The exploding popularity of keyword-based advertising fueled by Google is a relatively young and developing marketplace with companies continuing to tweak their strategies and mechanisms trying to get the auction system right for connecting advertisers with the ad space. In class we’ve talked a bit about optimal advertiser/ad matchings, but after all, its in the interests of the advertisers to take away all the consumer (advertisers in this case) surplus. They can only do this, however, in the absence of competition.

An marketing industry blogger on internet search, Bill Wise wrote a post entitled Accountability Matters at the end of last year on accountability in the keyword-based advertising market. He discusses how companies like Google and Yahoo are using their market power and making a shift from displaying competitive bids and click statistics to “black-box” systems like Google’s. He points out that advertisers should be holding on to this privilege of having the information in front of them. In many other forms of media that offer advertising, like television and print, prices are usually individually negotiated. Knowing the going rate can often help prevent buyer’s remorse and prevent a seller from price discriminating. The internet provides an opportunity for a perfectly competitive marketplace, if advertisers can seize the opportunity.