The Giffen good is a strange beast from economic theory. For most goods, demand decreases as price increases. A Giffen good defies this normal market behavior — the demand for it increases even as its price increases.
Giffen goods have a very interesting history. They were postulated originally by Alfred Marshall in his 1895 book The Principles of Economics. The classic example is staple foods such as rice, wheat, and potatoes. As their price goes up, poor people on a tight budget actually consume more of them, because they are forced to cut back on luxuries such as meat, but still need the same number of calories to survive. Until recently, Giffen goods remained a theoretical beast, with no real documented examples — until 2007, when two Harvard economists demonstrated that rice and noodles behave as Giffen goods in certain poor parts of China.
Google’s recent results raise the possibility that search advertising might be a Giffen good. Here’s a simple model. Company X spends marketing dollars on two channels: search advertising and brand advertising (on the web or on TV and magazines). Search advertising drives customers directly to their site, resulting in immediate sales. Brand advertising drives organic traffic, albeit in a more unmeasurable way.