The Impact of Market Competition on Search Advertising

• We study how market competition affects the content of search advertising.
• Market competition leads to more price advertising.
• Intermediaries engage in more price advertising when competition is high.
• Competition from intermediaries and brand suppliers has different effects.

Although search advertising has gained popularity in recent years, research on the content of search advertising is scarce. This study develops a conceptual framework to understand how market competition affects what a firm advertises in its search ads. Search advertisements from two industries (i.e., hotel and car industries) are used to test hypotheses developed from the conceptual framework. The findings indicate that in a highly competitive market (1) firms engage in more price advertising in their search ads and (2) intermediaries are more likely to increase price advertising in their search ads than brand suppliers. More interestingly, competition from intermediaries and brand suppliers has different effects on the content of search advertising by intermediaries and brand suppliers. These findings enhance the understanding of firms' behaviors in determining their search advertising content based on the intensity of market competition.