Seller Incentives in Sponsored Product Listings on Online Marketplaces

Abstract

Many online marketplaces offer sponsored product listings as third-party sellers’ ad slots that are blended in organic product listings. A seller’s potential benefit from sponsored listings is a non- trivial question, as a consumer may prefer or avoid advertised products and such preferences can be position-specific. This paper investigates a seller’s advertising incentives across positions in a large-scale field experiment. We provide the first evidence that consumers may avoid sponsored listings and prefer organic listings of same products in prime positions, whereas the negative ad effects can be attenuated in lower positions. To evaluate a seller’s financial benefits, we conduct a model-based ROI analysis with potential ad-induced position shifts. A seller is predicted to make positive net profits with ad-induced position elevation, depending on target ad placements and ratios between unit profit margin and ad cost per click. The results suggest that the value of sponsored listings for a seller mainly comes from position relocation, not from visual prominence at a given position.