Category Archives: Research Papers

Search Engine Optimization: What Drives Organic Traffic to Retail Sites?

(Dr. Babur De Los Santos with Michael R. Baye and Matthijs R. Wildenbeest, Journal of Economics &

Management Strategy, forthcoming)

 

The lion’s share of retail traffic through search engines originates from organic (natural) rather than sponsored (paid) links. We use a dataset constructed from over 12,000 search terms and 2 million users to identify drivers of the organic clicks that the top 759 retailers received from search engines in August 2012. Our results are potentially important for search engine optimization (SEO). We find that a retailer’s investments in factors such as the quality and brand awareness of its site increases organic clicks through both a direct and an indirect effect. The direct effectstems purely from consumer behavior: The greater the brand equity of an online retailer, the greater the number of consumers who click its link rather than a competitor in the list of organic results. The indirect effect stems from our finding that search engines tend to place better-branded sites in better positions, which results in additional clicks since consumers tend to click links in more favorable positions. We also find that consumers who are older, wealthier, conduct searches from work, use fewer words or include a brand name product in their search are more likely to click a retailer’s organic link following a product search. Finally, the brand equity of a retail site appears to be especially important in attracting organic traffic from individuals with higher incomes. The beneficial direct and indirect effects of an online retailer’s brand equity on organic clicks, coupled with the spillover effects on traffic through other online and traditional channels, leads us to conclude that investments in the quality and brand awareness of a site should be included as part of an SEO strategy.

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Search with Learning for Differentiated Products: Evidence from E-Commerce

(Dr. Babur De Los Santos with Ali Hortaçsu and Matthijs R. Wildenbeest, Journal of Business & Economic Statistics, forthcoming)

 

This paper provides a method to estimate search costs in a differentiated product environment in which consumers are uncertain about the utility distribution. Consumers learn about the utility distribution by Bayesian updating their Dirichlet process prior beliefs. The model provides expressions for bounds on the search costs that can rationalize observed search and purchasing behavior. Using individual-specific data on web browsing and purchasing behavior for MP3 players sold online we show how to use these bounds to estimate search costs as well as the parameters of the utility distribution. Our estimates indicate that search costs are sizable. We show that ignoring consumer learning while searching can lead to severely biased search cost and elasticity estimates.

 

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E-book Pricing and Vertical Restraints

(Dr. Babur De Los Santos with Matthijs R. Wildenbeest)

 

This paper empirically analyzes how the use of vertical price restraints has impacted retail prices in the market for e-books. In 2010 five of the six largest publishers simultaneously adopted the agency model of book sales, allowing them to directly set retail prices. This led the Department of Justice to file suit against the publishers in 2012, the settlement of which prevents the publishers from interfering with retailers’ ability to set e-book prices. Using a unique dataset of daily e-book prices for a large sample of books across major online retailers, we exploit cross- publisher variation in the timing of the return to the traditional wholesale model to estimate its effect on retail prices. We find that e-book prices for titles that were previously sold using the agency model decreased by 18 percent at Amazon and 8 percent at Barnes & Noble. Our results are robust to different specifications, placebo tests, and synthetic control groups. Our findings illustrate a case where upstream firms prefer to set higher retail prices than retailers and help to clarify conflicting theoretical predictions on agency versus wholesale models.

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