Search Intermediaries, Subscriptions, and Advertising

Some search intermediaries rely on advertising revenue, monetizing the market power that search frictions confer on firms. Others charge consumers a participation (subscription) fee, monetizing the search improvement they provide to consumers. I endogenize the choice of monetization channel of a platform by embedding it into a sequential search model with differentiated products. The platform reduces search frictions for its users and collects revenue either via sponsored search or by charging subscription fees. As on platform search becomes less frictional, monetizing shifts from advertising to subscription. Competition between search intermediaries may not be sufficient to stimulate investment in reducing frictions.