Price effects of search advertising restrictions

Jan Svitak, Jan Tichem, Stefan Haasbeek

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Some suppliers prohibit their distributors from advertising on search engines if the consumer searches for the supplier's brand name. Such restrictions are referred to as “non-brand bidding agreements” (NBBAs). This paper investigates the effect of NBBAs on retail prices in the Dutch hotel sector, where some hotels impose NBBAs on online hotel booking platforms. An NBBA may protect the hotel's own website against competition from hotels on booking platforms because booking platforms cannot target consumers searching for the hotel with a search ad. This may lead to higher prices on the hotel website. However, an NBBA may also generate ad savings, which may lead to lower prices. We use hotel prices from a meta-search site and data on NBBAs from two hotel booking platforms. To correct for unobserved heterogeneity between hotels with and without NBBA, we apply a trajectory balancing approach within a synthetic difference-in-differences framework. Compared to non-NBBA-hotels, NBBA-hotels charge higher prices on their website relative to the price on booking platforms, suggesting a price increase. We identify cases where it is unlikely that consumers benefit from passed-on ad savings.
Original languageEnglish
Article number102736
JournalInternational Journal of Industrial Organization
Volume77
DOIs
Publication statusPublished - Jun 2021

Keywords

  • vertical restraints
  • hotel non-brand bidding agreement
  • online travel agent
  • price effects
  • search advertising

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