Effectiveness of Paid Search Advertising: Experimental Evidence

19 Pages Posted: 4 Oct 2016 Last revised: 7 Oct 2016

See all articles by Daisy Dai

Daisy Dai

Purdue University, Krannert School of Management

Michael Luca

Harvard University - Business School (HBS)

Date Written: October 1, 2016


Paid search has become an increasingly common form of advertising, comprising about half of all online advertising expenditures. To shed light on the effectiveness of paid search, we design and analyze a large-scale field experiment on the review platform Yelp.com. The experiment consists of roughly 18,000 restaurants and 24 million advertising exposures – randomly assigning paid search advertising packages to more than 7,000 restaurants for a three-month period, with randomization done at the restaurant level to assess the overall impact of advertisements. We find that advertising increases a restaurant’s Yelp page views by 25% on average. Advertising also increases the number of purchase intentions – including getting directions, browsing the restaurant’s website, and calling the restaurant – by 18%, 9%, and 13% respectively, and raises the number of reviews by 5%, suggesting that advertising also affects the number of restaurant-goers. All advertising effects drop to zero immediately after the advertising period. A back of the envelope calculation suggests that advertising would produce a positive return on average for restaurants in our sample.

Suggested Citation

Dai, Daisy and Luca, Michael, Effectiveness of Paid Search Advertising: Experimental Evidence (October 1, 2016). Harvard Business School NOM Unit Working Paper No. 17-025, Available at SSRN: https://ssrn.com/abstract=2847084 or http://dx.doi.org/10.2139/ssrn.2847084

Daisy Dai

Purdue University, Krannert School of Management ( email )

610 Purdue Mall
West Lafayette, IN 47907
United States

Michael Luca (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=602417

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