4 research outputs found
Search Engine Advertising: Pricing Ads to Context
Each search term put into a search engine produces a separate set of
results. Correspondingly, each of the sets of ads displayed alongside
the results is priced using a separate auction. We investigate how bids
for these context-based ads depends on the difficulty of making a match.
This contrasts with the existing literature that focuses on the effect
of match quality. We examine advertising prices paid by lawyers for 139
Google search terms in 195 locations. Other things being equal, the
fewer searches there are on a term, the higher the price. To identify a
causal relationship between match-difficulty and prices paid, we exploit
a natural experiment in 'ambulance-chaser' regulations across states.
When lawyers cannot contact a client by mail and matching becomes more
difficult, the relative price per ad click is $0.93 higher. We check the
robustness of this result by performing a falsification test using a
different ambulance-chaser regulation. Our results suggest that prices
are higher for context-based ads when the difficulty of both online and
off-line matching increases. This highlights that a major reason why
search advertising is profitable is because its use of context can
monetize the 'long tail' by reducing friction in the matching process
Who thinks about the competition? Managerial ability and strategic entryin US local telephone markets
This paper examines how manager and firm characteristics relate to entry
decisions in US local telephone markets. To do so, it develops a
structural econometric model that allows managers to be heterogeneous in
their ability to correctly conjecture competitor behavior. The model
adapts Camerer, Ho, and Chong's (2004) Cognitive Hierarchy model to a
real-world setting. We observe the industry in 1998, shortly after the
Telecommunications Act of 1996 opened up the market. We find that older
firms with older, more experienced managers have higher estimated levels
of strategic ability. Managers with degrees in economics or business,
and managers with graduate degrees, also have higher estimated levels of
strategic ability. We find no evidence that university quality is
related to ability. We repeat this exercise using data from 2000, 2002,
and 2004. While the core results do not change, the overall level of
measured strategic ability increases substantially by 2004. The
estimates of strategic ability are also correlated with survival: those
firms with lower estimated levels of ability are more likely to exit the
industry early
Entrepreneurial Finance and the Flat-World Hypothesis: Evidence from Crowd-Funding Entrepreneurs in the Arts
We examine the geography of early stage entrepreneurial finance in the
context of an internet marketplace for funding new musical
artist-entrepreneurs. A large body of research documents that investors
in early-stage projects are disproportionately co-located with the
entrepreneur. Theory predicts this will be particularly true of
artist-entrepreneurs with preliminary-stage projects,
difficult-to-contract-for effort, difficult-to-observe creativity,
negligible tangible assets, and limited reputations. At the same time,
however, observers of the spatial effects of the internet and related
technologies report that many economic activities have become much less
geographically dependent. At an aggregate level, the internet
marketplace we examine does indeed demonstrate a spatial transformation
of the entrepreneurial finance process: the average distance between
investors and artist-entrepreneurs is 4,831 km. However, geography still
matters; investors are disproportionately likely to be local and,
conditional on investing, local investors invest more. This apparent
role for proximity is strongest before entrepreneurs visibly accumulate
capital. Within a single round of financing, local investors are more
likely to engage earlier in the funding cycle. However, this difference
in the timing of investment is almost entirely explained by a particular
type of investor, whom we characterize as 'family, friends, and fans.'
We conjecture that these individuals, who are disproportionately
co-located with the entrepreneur, have offline information about the
entrepreneur and therefore derive less new information from observing
the aggregate financing raised. We speculate that the path-dependent
role of this offline network in conveying information to the online
community limits the 'flat world' potential of these communication technologies
Geography and Electronic Commerce: Measuring Convenience, Selection, and Price
We develop a formal model of online-offline retail channel substitution
to identify three factors that drive consumers to purchase online:
convenience, selection, and price. This model builds hypotheses on how
features of offline retail supply impact online purchasing. We then
examine how the local availability of offline retail options drives use
of the online channel and consequently how the convenience, selection,
and price advantages of the online channel may vary by geographic
location. In particular, we examine the effect of local store openings
on online book purchases in that location. We explore this problem using
data from Amazon on the top selling books for 1501 unique locations in
the US for 10 months ending in January 2006. In addition to this data,
we use information on changes in local retail competition as measured by
openings of large bookstores such as Borders or Barnes & Noble and
discount stores such as Wal-Mart or Target. We show that even
controlling for product-specific preferences by location, changes in
local retail options have substantial effects on online purchases. We
demonstrate how the convenience, selection, and price benefits of the
Internet are different for consumers in different types of locations.
More generally, we show that geography significantly impacts the benefit
that consumers derive from electronic markets