Sponsorship Disclosure and Consumer Deception: Experimental Evidence from Native Advertising in Mobile Search

Recent advances in advertising technology have lead to the development of “native advertising”, which is a format of advertising that mimics the other non-sponsored content on the medium. While advertisers have rapidly embraced the format on a variety of digital media, regulators have expressed serious concerns about whether this format materially deceives consumers when the advertising disclosure is incomplete or inappropriate. This has reignited a longstanding debate about the distinction between advertising and content, and how it affects consumers. This paper contributes to this debate by providing empirical evidence from randomized experiments conducted on native advertising at a mobile restaurant-search platform. We experimentally vary the format of paid-search advertising, the extent to which ads are disclosed to over 200,000 users, and track their anonymized browsing behavior including clicks and conversions. Our research design uses comparisons of revealed preferences under experimentally manipulated treatment and control conditions to assess the potential for consumer confusion and deception. A design based on revealed preference is important to speaking to the “material” standard of regulators, and to assessing “confusion” while avoiding direct questioning of consumers. We find that native advertising benefits advertisers, and detect no evidence of deception under typically used formats of disclosure currently used in the paid-search marketplace. Further investigation shows that the incremental conversions due to advertising are not driven by users clicking on the native ads. Rather, the benefits from advertising are driven by users seeing the ads and later clicking on the advertiser’s “organic” listings. Thus, we find little support of typical native advertising “tricking” users and driving them to advertisers. Users seem to view ads and deliberately evaluate the advertisers. Overall, our results imply the incentives of the platform, advertisers and regulators with respect to disclosure are aligned: consumers value the clear disclosure regulators demand, and it benefits advertisers and improves monetization for the platform.