"Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment" with Thomas Blake and Steven Tadelis. Coverage: Economist; Harvard Busines Review; BBC
Internet advertising has been the fastest growing advertising channel in recent years with paid advertisements on search platforms (e.g., Google and Bing) comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that are designed to detect the causal effectiveness of paid search advertisements. Results show that brand-keyword ads have no short-term benefits, and that returns from all other keywords are a fraction of conventional estimates. We find that new and infrequent users are positively influenced by ads but that existing loyal users whose purchasing behavior is not influenced by paid search account for most of the advertising expenses, resulting in average returns that are negative. We discuss substitution to other channels and implications for advertising decisions in large firms.
"Competition and Quality Choice in the CPU Market"
This paper uses the CPU market to study how multiproduct firms generate returns from innovation. Using a new dataset, I estimate a discrete-choice model of CPU demand and then recover estimates of the sunk cost of product introductions. I combine these estimates with a model of firm product choice to examine how product line decisions change with asymmetric technological capabilities and with the competitive environment. I use the model to show how technological leaders can use product lines as strategic weapons, isolating competition to less desirable areas of the product spectrum. I apply this insight to a large shift in technological leadership -- Intel's introduction of the Core 2 Duo -- and quantify the portion of returns that came from Intel's ability to push its principle competitor, AMD, into lower-margin product segments. I find that competition plays a key role in determining firms' product line decisions and that these decisions are important in generating returns from innovation. Ignoring endogenous product choices leads to underestimates of the social welfare losses from monopoly.