Heterogeneous Rank Effects in Online Marketplace

Abstract

This paper studies the rank effect heterogeneity in the online marketplace and suggests a practical implication for marketing managers to set the optimal digital marketing strategies. Because of the increasing economy of online marketplaces, the position or rank effect is a crucial issue in the marketing literature. The latest literature has focused on the effects of sponsored search results on search engine advertising, though it is known that organic results are more critical than search ads. This research is novel to focus on the effect of organic results in the online marketplace. For analysis on the unit of product level, this paper constructs the rank index through weighted average by keyword search volumes. In the model, the rank effect was specified by the interaction of product-level and category-level averaged variables with the rank index, with the covariates of product-level time-variant variables and two-way fixed effects. Some products were selected randomly to escape the curse of dimensionality. The estimation result suggests that product sales increased in rank and the number of Q&A and reviews. Meanwhile, categories with high price dispersion experienced a lower rank effect, and categories with information asymmetry experienced a lower rank effect. The overall characteristics of the category, such as average price, product attributes, and competition intensity, do not have a significant rank effect. In conclusion, I suggest that marketing managers implement search engine optimization in online marketplaces if their products are in the category with a higher rank effect. This paper finally took a snapshot of the online marketplace by exploiting a vast dataset and extending the marketing literature to the new area. Future research considering hierarchical modeling and endogeneity can investigate more robust and rigorous causality.