Firms' Reactions to Public Information on Business Practices: Case of Search Advertising
41 Pages Posted: 29 May 2016 Last revised: 25 Feb 2018
Date Written: February 24, 2018
We use five years of bidding data to examine the reaction of advertisers to widely disseminated press on the lack of effectiveness of brand search advertising (queries that contain the firm's name) found in a large experiment run by eBay (Blake, Nosko and Tadelis, 2015). We estimate that 11% of firms that did not face competing ads on their brand keywords, matching the case of eBay, discontinued the practice of brand search advertising. In contrast, firms did not react to the information pertaining to the high value and ease of running experiments -- we observe no change in the experiment-like variation in advertising levels. Further, while 72% of firms had sharp changes in advertising suitable for estimating causal effects, we find no correlation between firm-level advertising effects and the propensity to advertise in the future. We discuss how a principal-agent problem within the firm would lead to these learning dynamics.
Keywords: information, learning, causal inference, e-commerce, search advertising
JEL Classification: D83
Suggested Citation: Suggested Citation