How Does the Use of Trademarks by Third-Party Sellers Affect Online Search?

Firms that sell via a direct channel and via indirect channels have to decide whether to allow third-party sellers to use the trademarked brand name of the product in their advertising. This question has been particularly controversial for advertising on search engines. In June 2009, Google started allowing any third-party reseller for a product to use a trademark, such as ‘Doubletree,’ in the text of its ad, even if the reseller did not have the trademark holder’s permission. We study the effects of this change empirically within the hotel industry. We find some evidence that allowing third-party sellers to use a trademark in their online search advertising weakly reduced the likelihood of a consumer clicking on a trademark holder’s paid search ads. However, the decrease in paid clicks was outweighed by a large increase in consumers clicking on the unpaid links to the hotelier’s website within the main search results. Our evidence shows that when third-party sellers focus on the trademarked brand in their ads, their ads become less distinct, and customers are more likely to ignore the advertised offers and buy from the direct channel. ∗Economics Department, Occidental College, CA †MIT Sloan School of Management, MIT, Cambridge, MA and NBER. ‡Thank-you to Josh Ackerman and Avi Goldfarb for useful comments. All errors are our own.