Competition and Crowd-Out for Brand Keywords in Sponsored Search

40 Pages Posted: 3 Oct 2015 Last revised: 15 Apr 2017

Andrey Simonov

University of Chicago, Booth School of Business, Students

Chris Nosko

University of Chicago - Booth School of Business

Justin M. Rao

Microsoft Research; Microsoft Corporation - Microsoft Research - Redmond

Date Written: April 13, 2017

Abstract

On search keywords with trademarked terms, the brand owner (“focal brand”) and other relevant firms compete for consumers. For the focal brand, paid clicks have a direct substitute in the organic links below the paid ad(s). The proximity of this substitute depends on whether competing firms are bidding aggressively to siphon off traffic. We study the returns to focal brands and competitors using large- scale experiments on Bing with data from thousands of brands. When no competitors are present, we find a positive, statistically significant impact of brand ads of 1-4%, with larger brands having a smaller causal effect. In this case, the effective “cost per incremental click” is significantly higher than focal brands typically pay on other keywords. When focal brand ad is present, competitors in paid positions 2-4 can “steal” 1-5% of focal brand’s clicks, and raise it’s costs by shifting traffic to the paid link. Finally, for a set of brands that face competition on their brand search but choose not to advertise, competitors “steal” 18-42% of clicks, suggesting a strong causal effect of position. Under such position effects, we find the ROI on defensive advertising to be strongly positive.

Keywords: sponsored search, competitive advertising, brand advertising, firm behavior

JEL Classification: M31, M37, D44

Suggested Citation

Simonov, Andrey and Nosko, Chris and Rao, Justin M., Competition and Crowd-Out for Brand Keywords in Sponsored Search (April 13, 2017). Available at SSRN: https://ssrn.com/abstract=2668265 or http://dx.doi.org/10.2139/ssrn.2668265

Andrey Simonov

University of Chicago, Booth School of Business, Students ( email )

Chicago, IL
United States

Chris Nosko

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Justin M. Rao (Contact Author)

Microsoft Research ( email )

641 Avenue of Americas
7th Floor
New York, NY 11249
United States

Microsoft Corporation - Microsoft Research - Redmond ( email )

Building 99
Redmond, WA
United States

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