Search Engine Advertising: Channel Substitution when Pricing Ads to Context
30 Pages Posted: 15 Oct 2007 Last revised: 25 Oct 2012
Date Written: October 1, 2010
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: Suggested Citation