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Search Engine Advertising: Channel Substitution When Pricing Ads to Context

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Author Info

  • Avi Goldfarb

    ()
    (Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada)

  • Catherine Tucker

    ()
    (MIT Sloan School of Management, Cambridge, Massachusetts 02142)

Abstract

We explore substitution patterns across advertising platforms. Using data on the advertising prices paid by lawyers for 139 Google search terms in 195 locations, we exploit a natural experiment in "ambulance-chaser" regulations across states. When lawyers cannot contact clients by mail, advertising prices per click for search engine advertisements are 5%-7% higher. Therefore, online advertising substitutes for offline advertising. This substitution toward online advertising is strongest in markets with fewer customers, suggesting that the relationship between the online and offline media is mediated by the marketers' need to target their communications. This paper was accepted by Pradeep Chintagunta, marketing.

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File URL: http://dx.doi.org/10.1287/mnsc.1100.1287
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 57 (2011)
Issue (Month): 3 (March)
Pages: 458-470

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Handle: RePEc:inm:ormnsc:v:57:y:2011:i:3:p:458-470

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Keywords: advertising and media; information systems; IT policy and management; electronic commerce; search engine advertising;

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Cited by:
  1. Monic Sun & Feng Zhu, 2011. "Ad Revenue and Content Commercialization: Evidence from Blogs," Working Papers 11-32, NET Institute.
  2. Michael R. Baye & Babur De los Santos & Matthijs R. Wildenbeest, 2012. "What's in a Name? Measuring Prominence, and its Impact on Organic Traffic from Search Engines," Working Papers 2012-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Lindstädt, Nadine & Budzinski, Oliver, 2012. "Newspaper vs. online advertising - Is there a niche for newspapers in modern advertising markets?," Ilmenau Economics Discussion Papers 73, Ilmenau University of Technology, Institute of Economics.
  4. Lacetera, Nicola & Macis, Mario & Mele, Angelo, 2014. "Viral Altruism? Generosity and Social Contagion in Online Networks," IZA Discussion Papers 8171, Institute for the Study of Labor (IZA).
  5. Nadine Lindstädt & Oliver Budzinski, 2012. "Newspaper and Internet Display Advertising – Co-Existence or Substitution?," Working Papers 114/12, University of Southern Denmark, Department of Environmental and Business Economics.
  6. Hong, Sounman, 2012. "Online news on Twitter: Newspapers’ social media adoption and their online readership," Information Economics and Policy, Elsevier, vol. 24(1), pages 69-74.
  7. Tucker, Catherine E., 2012. "The economics of advertising and privacy," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 326-329.
  8. Argenton, C. & Prüfer, J., 2011. "Search Engine Competition with Network Externalities," Discussion Paper 2011-024, Tilburg University, Tilburg Law and Economic Center.
  9. Emilio Calvano & Bruno Jullien, 2011. "Issues in on-line advertising and competition policy: a two-sided market perspective," Working Papers 427, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Avi Goldfarb, 2014. "What is Different About Online Advertising?," Review of Industrial Organization, Springer, vol. 44(2), pages 115-129, March.
  11. Roberto Burguet & Ramon Caminal & Matthew Ellman, 2014. "In Google We Trust?," Working Papers 717, Barcelona Graduate School of Economics.
    • Roberto Burguet & Ramon Caminal & Matthew Ellman, 2013. "In Google we trust?," UFAE and IAE Working Papers 935.13, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC), revised 12 Feb 2014.

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