Firm Competitive Structure and Consumer Reaction in Search Advertisings

Sponsored search advertising has become an important venue for firms competing for consumers. As a result, many keywords attract a large number of bidders, and the competing advertisers may be quite heterogeneous. We examine whether this heterogeneity impacts how consumers perceive and react to such competitions. To this end, we draw on the theory of strategic groups to prescribe the structure of the competitive environment and investigate how strategic groups impact consumers’ clicking and website-visit behavior when viewing sponsored search results. Our unique datasets that combine search results from Google and consumers’ clickstream data enable us to disentangle such an impact. We find strong positive externality for within-group competitors relative to across-group competitors: (1) consumers are more likely to co-visit two firms that belong to the same strategic group, as opposed to two firms from different groups when both firms appear in the search results; (2) the presence of a firm in the search results primes consumers to visit other firms from the same strategic group even when the other firms do not appear in the search results. Our findings contribute to the sponsored search and strategic group literature by theorizing and empirically verifying consumers’ website-visit behaviors from the strategic group perspective.