Empirical Generalizations in Search Engine Advertising

• Prices are higher in services than in retail industries.
• The average price per click is highest in the US ($5.46) and lowest in Italy ($1.41).
• Prices per click significantly increased by $0.08 every six months (from $2.06 to $2.72).
• Our decomposition method disentangles price and quantity effects.
• 44 percent of the expenditure increase correlates with more clicks; 56 percent with higher prices.

This article compares prices per click and search engine advertising (SEA) effectiveness across six countries and 15 industries over four years. We find that prices per click are highest in the United States and United Kingdom, as well as in the financial and Internet services industries, but are lower in retail than in services industries. In highly competitive markets, increases in SEA expenditures may increase prices per click that do not necessarily lead to higher advertising effectiveness, here measured as a higher number of clicks. To analyze and compare advertising effectiveness across industries, we decompose the effect of increases in SEA expenditures on prices per click (price effect) and number of clicks (quantity effect). A cross-country, cross-industry study shows that 44 percent of the increase in SEA expenditures is associated with more clicks and 56 percent with higher prices.

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