Research Note ---Quality Uncertainty and the Performance of Online Sponsored Search Markets: An Empirical Investigation

Animesh Animesh (), Vandana Ramachandran () and Siva Viswanathan ()
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Animesh Animesh: Desautels Faculty of Management, McGill University, Montreal, Quebec H3A 1G5, Canada
Vandana Ramachandran: David Eccles School of Business, University of Utah, Salt Lake City, Utah 84112
Siva Viswanathan: Decision, Operations, and Information Technologies, Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Information Systems Research, 2010, vol. 21, issue 1, 190-201

Abstract: Online sponsored search advertising has emerged as the dominant online advertising format largely because of their pay-for-performance nature, wherein advertising expenditures are closely tied to outcomes. While the pay-for-performance format substantially reduces the wastage incurred by advertisers compared to traditional pay-per-exposure advertising formats, the reduction of such wastage also carries the risk of reducing the signaling properties of advertising. Lacking a separating equilibrium, low-quality firms in these markets may be able to mimic the advertising strategies of high-quality firms. This study examines this issue in the context of online sponsored search markets. Using data gathered from sponsored search auctions for keywords in a market without intervention by the intermediary, we find evidence of adverse selection for products/services characterized by high uncertainty. On the other hand, there is no evidence of adverse selection for similar products in a regulated sponsored search market, suggesting that intervention by the search intermediary can have a significant impact on market outcomes and consumer welfare.

Keywords: electronic commerce; competitive impacts of IS; IT impacts on industry and market structure; econometrics (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:orisre:v:21:y:2010:i:1:p:190-201

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