The Role of Search Engine Optimization in Search Rankings

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