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Effectiveness of Paid Search Advertising: Experimental Evidence

Listed author(s):
  • Weijia (Daisy) Dai

    ()

    (Lehigh University)

  • Michael Luca

    ()

    (Harvard Business School, Negotiation, Organizations & Markets Unit)

Registered author(s):

    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.

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    File URL: http://www.hbs.edu/faculty/pages/download.aspx?name=17-025.pdf
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    Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 17-025.

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    Length: 19 pages
    Date of creation: Oct 2016
    Handle: RePEc:hbs:wpaper:17-025
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    1. John List & Azeem Shaikh & Yang Xu, 2016. "Multiple Hypothesis Testing in Experimental Economics," Artefactual Field Experiments 00402, The Field Experiments Website.
    2. Avi Goldfarb & Catherine Tucker, 2011. "Online Display Advertising: Targeting and Obtrusiveness," Marketing Science, INFORMS, vol. 30(3), pages 389-404, 05-06.
    3. Soohyung Lee & Azeem M. Shaikh, 2014. "Multiple Testing And Heterogeneous Treatment Effects: Re‐Evaluating The Effect Of Progresa On School Enrollment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(4), pages 612-626, June.
    4. Thomas Blake & Chris Nosko & Steven Tadelis, 2015. "Consumer Heterogeneity and Paid Search Effectiveness: A Large‐Scale Field Experiment," Econometrica, Econometric Society, vol. 83, pages 155-174, January.
    5. Avi Goldfarb & Catherine Tucker, 2011. "Rejoinder--Implications of "Online Display Advertising: Targeting and Obtrusiveness"," Marketing Science, INFORMS, vol. 30(3), pages 413-415, 05-06.
    6. Song Yao & Carl F. Mela, 2008. "A Dynamic Model of Sponsored Search Advertising," Working Papers 08-16, NET Institute, revised Sep 2008.
    7. Susan Athey & Guido Imbens, 2016. "The Econometrics of Randomized Experiments," Papers 1607.00698, arXiv.org.
    8. Song Yao & Carl F. Mela, 2011. "A Dynamic Model of Sponsored Search Advertising," Marketing Science, INFORMS, vol. 30(3), pages 447-468, 05-06.
    9. Ackerberg, Daniel A, 2001. "Empirically Distinguishing Informative and Prestige Effects of Advertising," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 316-333, Summer.
    10. Imbens,Guido W. & Rubin,Donald B., 2015. "Causal Inference for Statistics, Social, and Biomedical Sciences," Cambridge Books, Cambridge University Press, number 9780521885881, December.
    11. Tat Y. Chan & Chunhua Wu & Ying Xie, 2011. "Measuring the Lifetime Value of Customers Acquired from Google Search Advertising," Marketing Science, INFORMS, vol. 30(5), pages 837-850, September.
    12. 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.
    13. Randall A. Lewis & Justin M. Rao, 2015. "The Unfavorable Economics of Measuring the Returns to Advertising," The Quarterly Journal of Economics, Oxford University Press, vol. 130(4), pages 1941-1973.
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