Accelerated Quality Discovery through Sponsored Search Advertising in Online Marketplaces

This paper analyzes the dynamic e¤ect of sponsored search advertising on quality discovery on the Taobao.com retail platform. A stylized model spells out the dynamic from a theoretical perspective: A new product’s boosted exposure from sponsored search ads could help the platform to infer how well the product converts exposure to sales (the quality measure). Because the platform awards top organic search ranks to products inferred of high quality, sellers with higher private quality signals would bid more aggressively for sponsored ads, which accelerates the platform’s discovery of these high-quality products. An empirical speci…cation, connecting search ranks to sales through exposure, is estimated using scraped panel data on sales of hundreds of products and their sponsored and organic search ranks under thousands of keywords on both PC and mobile interfaces. A platform-speci…c feature with individual organic ranks a¤ected by asynchronous weekly cycles provides exogenous variation for identi…cation. The estimation results echo the stylized model’s characterization of the informational landscape and reveal a synergy between the platform’s PC and mobile interfaces: PC consumers browse extensively and generate signi…cant exposure for sponsored products. Observations of sponsored sales to PC consumers could improve the organic rankings in the mobile app, where consumers highly concentrate on top