Online Sponsored Search Advertising as a Quality Signal and its Impact on Consumer Bahvior

The advent of sponsored search advertising raises many interesting questions regarding consumer's behavior, seller's advertising strategy, and the ensuing market dynamics. Online markets are characterized by significant information asymmetries and consumers rely on a number of informational cues or signals to infer the seller's quality. Of the various quality signals, advertising and price have been identified as being the two most important cues used by consumers in traditional markets. However, online sponsored search markets have a number of unique characteristics which may affect consumer search and purchase behavior. This study employs theories from IS, marketing, and economics to understand the impact of sponsored search advertising on consumer behavior in a market that exhibits information asymmetry. We conduct a lab experiment and find that the availability of relative advertising expenditure -observed by the position of the sellers on the sponsored search listings has a significant impact on consumer purchase behavior.