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The Impact of Sales Rankings on Sales Dynamics and Digital Advertising Effectiveness

Digital platforms, ranging from etailers to purely informational websites,increasingly and ubiquitously provide real-time, data-rich, market-level information for consumers. Commercially-oriented platforms, for example, publish consumer ratings and reviews. In addition to consumer-level

content, many commercial platforms also provide real-time market-level information regarding the popularity of products. This is done, most likely, in order to create a bandwagon-like effect. Search engines sort results also

according to some measure of popularity, retail sites provide best-sellers' lists and rank-order their products, and mobile application stores provide a current list of their most popular applications. The above developments suggest an important role for advertising. In particular, the objective of

the advertising becomes not so much to produce an immediate sale, but to generate the market-level information that when displayed on websites, in turn drives sales. Using a unique, high-resolution, cross-country rich data set for a mobile application on the iOS app store, we study the extent of the amplification effect of published real-time rankings on advertising efficiency and a potential larger-scale effect on market structure. We develop a multi-

equation dynamic model of product sales, product rank, and advertising levels, and estimate it using three-stage least squares. We find that (1) published sales rankings can be an important multiplier for advertising effectiveness, (2) the ranking effect may be crucial for positive ROI for low margin products and (3) having the ranking mechanism in place can considerably increase the concentration of market shares within a market.