Search Advertising and Information Discovery: Are Consumers Averse to Sponsored Messages?
74 Pages Posted: 24 Aug 2019 Last revised: 15 Feb 2020
Date Written: February 10, 2020
We analyze a large-scale field experiment conducted on a US search engine in which 3.3 million users were randomized into seeing more, or less prominent advertising. Our data rejects that users are, overall, averse to search advertising targeted to them. At the margin, users prefer the search engine with higher level of advertising. The usage of the search engine (in terms of number of searches, and number of sessions) is higher among users who see higher levels of advertising, relative to the control group. This difference in usage persists even after the experimental treatment ends. The increase in usage is larger for users on the margin who, in the past, typed a competing search engine's name in the search query and navigated away from our focal search engine. On the supply side, higher level of advertising increases traffic to newer websites. Consumers also respond more positively to advertising when local businesses in their state create new websites. Quantitatively, the experimental treatment of a higher level of advertising increases ad clicks which leads to between 4.3% to 14.6% increase in search engine revenue.
Taken together, patterns in our data are consistent with an equilibrium in which advertising compensates for important information gaps in organic listings: it conveys relevant new information, which is unknown to the search engine, and therefore missed by the organic listings algorithm. Viewing search ads, at the margin we study, makes consumers better off on average.
Keywords: search advertising, search engine, marketing, economics
JEL Classification: M37, D83, L10
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