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Search Engine Advertising: Channel Substitution when Pricing Ads to Context

30 Pages Posted: 15 Oct 2007 Last revised: 25 Oct 2012

Avi Goldfarb

University of Toronto - Rotman School of Management

Catherine E. Tucker

Massachusetts Institute of Technology (MIT) - Management Science (MS)

Date Written: October 1, 2010

Abstract

We explore substitution patterns across advertising platforms. Using data on the advertising prices paid by lawyers for 139 Google search terms in 195 locations, we exploit a natural experiment in “ambulance-chaser” regulations across states. When lawyers cannot contact clients by mail, advertising prices per click for search engine advertisements are 5-7% higher. Therefore, online advertising substitutes for offline advertising. This substitution towards online advertising is strongest in markets with fewer customers, suggesting that the relationship between the online and offline media is mediated by the marketers’ need to target their communications.

Keywords: search engines, advertising, market power, advertising prices

JEL Classification: L86, M37

Suggested Citation

Goldfarb, Avi and Tucker, Catherine E., Search Engine Advertising: Channel Substitution when Pricing Ads to Context (October 1, 2010). NET Institute Working Paper No. 07-23. Available at SSRN: https://ssrn.com/abstract=1021451 or http://dx.doi.org/10.2139/ssrn.1021451

Avi Goldfarb (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

Catherine E. Tucker

Massachusetts Institute of Technology (MIT) - Management Science (MS) ( email )

100 Main St
E62-536
Cambridge, MA 02142
United States

HOME PAGE: http://cetucker.scripts.mit.edu

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