Internet advertising has been the fastest growing advertising channel in recent years, with paid search ads comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that were designed to measure the causal effectiveness of paid search ads. Because search clicks and purchase intent are correlated, we show that returns from paid search are a fraction of non-experimental estimates. As an extreme case, we show that brand keyword ads have no measurable short-term benefits. For non-brand keywords, we find that new and infrequent users are positively influenced by ads but that more frequent users whose purchasing behavior is not influenced by ads account for most of the advertising expenses, resulting in average returns that are negative.

Abstract We study patterns of behavior in bilateral bargaining situations using a rich new data set describing back-and-forth sequential bargaining occurring in over 25 million listings from eBay’s Best Offer platform. We compare observed behavior to predictions from the large theoretical bargaining literature. One-third of bargaining interactions end in immediate agreement, as predicted by complete-information models. The majority of sequences play out differently, ending in disagreement or delayed agreement, which have been rationalized by incomplete information models. We find that stronger bargaining power and better outside options improve agents’ outcomes. Robust empirical findings that existing models cannot rationalize include reciprocal (and gradual) concession behavior and delayed disagreement. Another robust pattern at odds with existing theory is that players exhibit a preference for making and accepting offers that split the difference between the two most recent offers. These observations suggest that behavioral norms, which are neither incorporated nor explained by existing theories, play an important role in the success of bargaining outcomes.

We outline a framework for the empirical analysis of signaling games based on three features: sorting, incentive compatibility, and beliefs. We apply it to document cheap-talk signaling in the use of round-number offers during negotiations. Using millions of online bargaining interactions, we show that items listed at multiples of $100 receive offers that are 8–12 percent lower but are 15–25 percent more likely to sell, demonstrating the trade-off requisite for incentive compatibility. Those same sellers are more likely to accept a similar offer, and buyers are more likely to investigate their listings, consistent with seller sorting and buyer belief updating.