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Price effects of search advertising restrictions

Jan Sviták, Jan Tichem and Stefan Haasbeek

International Journal of Industrial Organization, 2021, vol. 77, issue C

Abstract: Some suppliers prohibit their distributors from advertising on search engines if the consumer searches for the supplier's brand name. Such restrictions are referred to as “non-brand bidding agreements” (NBBAs). This paper investigates the effect of NBBAs on retail prices in the Dutch hotel sector, where some hotels impose NBBAs on online hotel booking platforms. An NBBA may protect the hotel's own website against competition from hotels on booking platforms because booking platforms cannot target consumers searching for the hotel with a search ad. This may lead to higher prices on the hotel website. However, an NBBA may also generate ad savings, which may lead to lower prices. We use hotel prices from a meta-search site and data on NBBAs from two hotel booking platforms. To correct for unobserved heterogeneity between hotels with and without NBBA, we apply a trajectory balancing approach within a synthetic difference-in-differences framework. Compared to non-NBBA-hotels, NBBA-hotels charge higher prices on their website relative to the price on booking platforms, suggesting a price increase. We identify cases where it is unlikely that consumers benefit from passed-on ad savings.

Keywords: Vertical restraints; Hotel; Non-brand bidding agreement; Online travel agent; Price effects; Search advertising (search for similar items in EconPapers)
JEL-codes: D40 D83 L42 L81 M37 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
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DOI: 10.1016/j.ijindorg.2021.102736

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International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal

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