Are Consumers Averse to Sponsored Messages? The Role of Search Advertising in Information Discovery

Abstract

We analyze a large-scale randomized field experiment in which a search engine varied the prominence of search ads for 3.3 million US users: one group of users saw the status quo, while the other saw a lower level of advertising (with search ads sidelined). While lowering advertising significantly decreases the search engine's revenue as expected, users exposed to the decreased level of advertising also decrease their overall search engine usage. This reduction is more significant among multi-homing users. On the supply side, going from the status quo to lower level of advertising decreases traffic to newer websites, with the newest decile losing traffic by 10%.

Overall, our data suggest that viewing search ads makes consumers better off at the margin we study. We illustrate a constructive role of search advertising where advertising fills significant information gaps by conveying new information that is difficult for the search engines to gather and therefore missed by their organic algorithms.

Keywords: search advertising, search engine, marketing, economics

JEL Classification: M37, C93, M21, L82, D82, D83