Language, Internet and Platform Competition: the case of Search Engine (Preliminary, Comments Welcome)∗

Although transaction costs associated with on-line commerce are lower than the off-line transaction costs, language remains a key barrier to trade. This paper analyzes how on-line consumers ’ knowledge of a foreign language affects international compe-tition between on-line platforms, such as internet search engines. More precisely, we consider search engines which provide interactions between two sides (consumers and merchants) of the market and analyze how the competition between a foreign platform and a domestic one in a home country is affected by whether consumers of the home country are monolingual or bilingual. We find some surprising results: (i) bilingualism can either increase or decrease the foreign platform’s market share in the home country; (ii) bilingualism unambiguously softens platform competition; (iii) bilingualism can either increase or decrease the home country’s welfare. We apply our results to address the question of to what extent Google’s high market share in a given country is due to its own superior technology as opposed to the dominance of English