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Search Engine Advertising: Channel Substitution When Pricing Ads to Context

  • Avi Goldfarb

    ()

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

  • Catherine Tucker

    ()

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

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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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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  1. Susan Athey & Scott Stern, 2002. "The Impact of Information Technology on Emergency Health Care Outcomes," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 399-432, Autumn.
  2. Sridhar Narayanan & Puneet Manchanda, 2009. "Heterogeneous Learning and the Targeting of Marketing Communication for New Products," Marketing Science, INFORMS, vol. 28(3), pages 424-441, 05-06.
  3. Bergemann, Dirk & Bonatti, Alessandro, 2010. "Targeting in Advertising Markets: Implications for Offline vs. Online Media," CEPR Discussion Papers 7988, C.E.P.R. Discussion Papers.
  4. Susan Athey & Joshua S. Gans, 2010. "The Impact of Targeting Technology on Advertising Markets and Media Competition," American Economic Review, American Economic Association, vol. 100(2), pages 608-13, May.
  5. Zsolt Katona & Miklos Sarvary, 2010. "The Race for Sponsored Links: Bidding Patterns for Search Advertising," Marketing Science, INFORMS, vol. 29(2), pages 199-215, 03-04.
  6. Benjamin Edelman & Michael Ostrovsky & Michael Schwarz, 2007. "Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords," American Economic Review, American Economic Association, vol. 97(1), pages 242-259, March.
  7. Anindya Ghose & Sha Yang, 2009. "An Empirical Analysis of Search Engine Advertising: Sponsored Search in Electronic Markets," Management Science, INFORMS, vol. 55(10), pages 1605-1622, October.
  8. Sha Yang & Anindya Ghose, 2010. "Analyzing the Relationship Between Organic and Sponsored Search Advertising: Positive, Negative, or Zero Interdependence?," Marketing Science, INFORMS, vol. 29(4), pages 602-623, 07-08.
  9. Esther Gal-Or & Mordechai Gal-Or, 2005. "Customized Advertising via a Common Media Distributor," Marketing Science, INFORMS, vol. 24(2), pages 241-253, July.
  10. Anindya Ghose & Sha Yang, 2007. "An Empirical Analysis of Search Engine Advertising: Sponsored Search and Cross-Selling in Electronic Markets," Working Papers 07-35, NET Institute, revised Sep 2007.
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