Knowledge that Transforms

Online search intermediaries, such as Amazon or Expedia, use rankings (ordered lists) to present third-party sellers’ products to consumers. These rankings decrease consumer search costs and increase the probability of a match with a seller, ultimately increasing consumer welfare. Constructing relevant rankings requires understanding their causal effect on consumer choices. However, this is challenging because rankings are endogenous: consumers pay more attention to highly ranked products, and intermediaries rank the most relevant products at the top. In this paper, I use the first data set with experimental variation in the ranking from a field experiment at Expedia to make three contributions. First, I identify the causal effect of rankings and show that they affect what consumers search, but conditional on search, do not affect purchases. Second, I quantify the effect of rankings using a sequential search model and find an average position effect of $1.92, which is lower than literature estimates obtained without experimental variation. I also use model predictions, data patterns, and a feature of the data set (opaque offers) to show rankings lower search costs, instead of affecting consumer expectations or utility. Finally, I show a utility-based ranking built on this model’s estimates benefits consumers and the search intermediary. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1072 .

In the digital economy, influencing and controlling the spread of information is a key concern for firms. One way firms try to achieve this is to target firm communications to consumers who embrace and propagate the spread of new information on emerging and “trending” topics on social media. However, little is known about whether early trend propagators are indeed responsive to firm-sponsored messages. To explore whether early propagators of trending topics respond to advertising messages, we use data from two field tests conducted by a charity and an emerging fashion firm on the microblogging service Twitter. On Twitter, “promoted tweets” allow advertisers to target individuals based on the content of their recent postings. Twitter continuously identifies in real time which topics are newly popular among Twitter users. In the field tests, we collaborated with a charity and a fashion firm to target ads at consumers who embraced a Twitter trend early in its life cycle by posting about it, and compared their behavior to that of consumers who posted about the same topic later on. Throughout both field tests, we consistently find that early propagators of trends are less responsive to advertising than consumers who embrace trends later. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1062 .

Online advertisers often utilize multiple publishers to deliver ads to multihoming consumers. These ads often generate externalities and their exposure is uncertain, impacting advertising effectiveness across publishers. We analyze the inefficiencies created by externalities and uncertainty when information is symmetric between advertisers and publishers, in contrast to most previous research that assumes information asymmetry. Although these inefficiencies cannot be resolved through publisher-side actions, attribution methods that measure campaign uncertainty can serve as alternative solutions to help advertisers adjust their strategies. Attribution creates a virtual competition between publishers, resulting in a team compensation problem. The equilibrium may potentially increase the aggressiveness of advertiser bidding, leading to increased advertiser profits. The popular last-touch method is shown to overincentivize ad exposures, often resulting in lower advertiser profits. The Shapley value achieves an increase in profits compared with the last-touch method. Popular publishers and those that appear early in the conversion funnel benefit the most from advertisers using last-touch attribution. The increase in advertiser profits comes at the expense of total publisher profits and often results in decreased ad allocation efficiency. We also find that the prices paid in the market will decrease when more sophisticated attribution methods are adopted. The online appendix is available at https://doi.org/10.1287/mksc.2018.1104 .

We propose a new strategy for proactive churn management that actively uses social network information to retain consumers.

Instead of purchasing individual content, streaming adopters rent access to libraries from which they can consume content at no additional cost. In this paper, we study how the adoption of music streaming affects listening behavior. Using a unique panel data set of individual consumers’ listening histories across many digital music platforms, adoption of streaming leads to very large increases in the quantity and diversity of consumption in the first months after adoption. Although the effects attenuate over time, even after half a year, adopters play substantially more, and more diverse, music. Relative to music ownership, where experimentation is expensive, adoption of streaming increases new music discovery. While repeat listening to new music decreases, users’ best discoveries have higher play rates. We discuss the implications for consumers and producers of music. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1051 .

Political advertising is controversial, as there is widespread concern about money from political action committees (PACs and super PACs) distorting the democratic process. Studying advertising effectiveness is, however, a challenging topic for several reasons, including the endogenous nature of fundraising and ad spending rates. However, the extensive use of targeting based on designated marketing areas (DMAs) creates a setting in which neighboring counties with comparable demographics receive different levels of advertising exposure. In this paper, we leverage these advertising discontinuities along DMA borders to study the relative effectiveness of political advertising on vote shares and turnout rates in 2010 and 2012 senatorial elections. We find that negative advertising sponsored by PACs is significantly less effective than that sponsored by candidates in affecting two-party vote shares and voter turnout. A 1% increase in negative advertising by the candidate produces a significant 0.015% lift in the candidate’s unconditional vote shares. By contrast, negative advertising from PACs is ineffective in increasing its supported candidate’s unconditional vote share. Further analysis reveals that the competitiveness of races moderates the effectiveness of political advertising, providing implications for those managing candidates’ campaigns, PACs, and super PACs. Data and the online appendix are available at https://doi.org/10.1287/mksc.2017.1079 .