Firms' Reactions to Public Information on Business Practices: Case of Search Advertising

41 Pages Posted: 29 May 2016 Last revised: 25 Feb 2018

See all articles by Justin M. Rao

Justin M. Rao

Microsoft Research; Microsoft Corporation - Microsoft Research - Redmond

Andrey Simonov

Columbia University - Columbia Business School

Date Written: February 24, 2018

Abstract

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

Rao, Justin M. and Simonov, Andrey, Firms' Reactions to Public Information on Business Practices: Case of Search Advertising (February 24, 2018). Available at SSRN: https://ssrn.com/abstract=2785009 or http://dx.doi.org/10.2139/ssrn.2785009

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

Andrey Simonov

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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