Applied Economics Seminar Series: Effectiveness of Paid Search Advertising: Experimental Evidence

Paid search advertising has become increasingly common, comprising about half of all online advertising expenditures. To shed light on the effectiveness and mechanism of paid search advertising, we design and analyze a large-scale field experiment on the review platform Yelp.com. The experiment consists of roughly 18,000 restaurants and 500 million advertising exposures. Yelp's business search advertising packages are randomly assigned to more than 7,000 restaurants for a three-month period. We find that advertising increases a restaurant's Yelp page views and consumer purchase intentions, including getting directions, calling the restaurant, browsing the restaurant's website, and leaving reviews. The advertising effects decline continuing through the consumer's purchase funnel, indicating lower purchase conversion rate from paid page views compared with organic page views. A back-of-the-envelope calculation suggests that advertising would on average produce a positive return for restaurants in our sample. In addition, we find larger advertising effects for restaurants that are newer, non-chain, and with better consumer ratings, suggesting the informative role of paid search advertising.

Presented by Daisy Dai, Lehigh University.