Competition and Crowd-Out for Brand Keywords in Sponsored Search

Abstract

On search keywords that include trademarked terms, the brand owner (focal brand) and other relevant firms compete for consumers. For the focal brand, paid clicks have a direct substitute in the organic link that appears directly below the advertisements. This crowd-out can create a large wedge between the real causal effect and commonly-reported nominal measures, such as click-through rates. We quantify this wedge using a large-scale, fully randomized experiment on Bing, which allows us to study 2,500 brands with a sufficient sample size. We find a positive, statistically significant impact of brand ads, with a modest size, on the order of 1-4%. There is significant heterogeneity, with more well-known brands showing a smaller causal effect. Competitors greatly impact the market. First, if the focal brand is not present in the top slot, competitors 10-20% of clicks on average. Second, when the focal brand is in the top slot, competitors steal only a modest fraction of clicks, 1-5%, but dramatically shift the focal brand's traffic from the organic link to the paid link, raising the focal brand's costs. Taken together, the results indicate the primary value of branded paid links is defensive in nature.