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Predatory Spending?

I remember from my old college economics classes reading about the Hunt brothers attempt to corner the silver market. This didn't turn out too well for them.

Wikipedia defines "cornering the market" as: "an illegal attempt to buy up enough of a particular commodity to allow the price to be manipulated." Likewise, it defines "predatory pricing" as "the practice of a firm selling a product at very low price with the intent of driving competitors out of the market, or create a barrier to entry into the market for potential new competitors."

As the internet continues to evolve, it becomes pretty clear that having a valuable offline brand means pretty much zero when it comes to online success. The offline news leaders, newspapers - online, Yahoo/ AOL. Offline auction leaders: Christies/ Sotheby's - online, eBay. The offline bookstores: Borders, Barnes & Noble - online, amazon.com. Offline classifieds: newspapers - online, craigslist. And the list goes on and on.

So with the internet creating pretty much a "fresh start" for competition in most industries, and with Google/ search being the start page for the internet, is it possible for offline brands to cripple their upstart online competition through SEM bids. Can they drive away the competition by bidding up keywords to such a degree, that buying traffic and building a brand become such an expensive proposition that they create an actual barrier to entry for that market place.

Case in point, go to Google and type in "lawn mower." The results are online retailers, price comparison engines, etc. But I'm guessing Wal-Mart sells more lawn mowers than anybody else. Do they want to allow somebody to build a business buying the key-word lawn mower and converting these buys into lawn mower sales? Or do they want to protect their market share?

If so, is there a way for them to drive up the cost of that keyword to such a level, that no one can profitably arbitrage the search traffic? In other words, is it possible to use some sort of reverse predatory pricing (predatory spending?) to corner the market on a particular set of search terms that competition from start-ups/ new entrants is thwarted?

I have no idea if this has ever been tried or whether, alternatively, it is a common practice in the SEM world today. In either scenario, I'd be curious to see how the numbers played out. I also wonder, if someone was doing this successfully, how the anti-trust crusaders at the Justice Department would feel about it.

As for Google, they too would be torn. On one hand they would be the immediate beneficiary of the increased search term costs. On the other hand, if there were antitrust implications, I'm sure they would do everything to keep the government from poking around their records and forming an opinion as to whether this could happen if a single company didn't have a 70% share of the search market. And of course, most folks would call this type of practice evil - and we know how Google feels about that...

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This page contains a single entry from the blog posted on February 3, 2007 2:08 PM.

The previous post in this blog was Spotting Opportunity.

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