| Abstract: |
We study how in-store display ads communicate information about a product’s
price and quality, both directly through ad content and indirectly through
inferences consumers draw from the presence and content of the ad. We run an
incentivized experiment in a simulated online store, randomizing ad exposure,
ad content, and the advertised product’s price, while also eliciting
participants’ beliefs and choices. Display ads shift beliefs about price and
quality, even when the ad copy does not directly reveal either attribute. We
provide evidence that these belief shifts have a causal effect on searches and
purchases of the advertised product. Using a stylized search model, we show
that while visibility explains most of the ad effects, belief updating
explains a statistically and economically significant share. Casting ad
content choice as an information design problem, we show that advertisers may
find it optimal to conceal product information even when it exceeds consumers’
expectations. |