The Impact of Competing Ads on Click Performance in Sponsored Search

Our research examines the impact of competing ads on click performance of an ad in sponsored search. We use a unique data set of 1,267 advertiser keyword pairs with differing ad quality related to 360 keywords from a search engine to evaluate the click performance. We find that competing high-quality ads, appearing above the focal ad, have a lower negative effect on the click performance as compared to competing lowquality ads. We also find that this effect of competing ads varies with the ad position and the type of keyword. In general, the negative effect of competing high-quality ads decreases at low positions as compared to high positions. Furthermore, this decrease in the negative effect of competing high-quality ads is more substantial for specific keywords. Our results reveal consumer behavior in evaluating different quality ads in sponsored search. More specifically, our results suggest that consumers use the presence of high-quality competing ads as a signal of higher quality of the focal ad. Our findings can help advertisers better evaluate their relative performance for different positions for various types of keywords. This can also help evaluate the efficacy of the auction design mechanism.