Advertising as Information for Ranking E-Commerce Search Listings

New products are the lifeblood of many sellers, who increasingly reach consumers via e-commerce platforms. Yet, search engines and e-commerce platforms have substantial difficulty exposing new products to their users on account of an information problem: in the early stages of launch, new products have not accumulated enough sales, orders, or other user-engagement information in order to reliably assess them of high-enough quality so as to rank them high in search listings. This paper evaluates the role of advertising in providing information to the platform regarding new product quality so as to solve this “cold-start” problem. If in equilibrium, sellers launching new products of higher quality tend to advertise more, incorporating the advertising propensity of sellers into the search ranking algorithm can help obtain exposure to higher quality products. We leverage search ranking experiments implemented at JD.com–a large e-commerce platform in China–to assess the value of using ad propensity information in search rankings. Our results show that boosting new products in search rankings helps increase not only their discoverability, but also increases sales of other products because consumers increase their overall sales on the platform. Overall, incorporating ad propensity information benefits both the platform and consumers, in the short run. Our findings showcase a new channel by which advertising can improve outcomes for consumers and platforms in e-commerce, through its ability to reveal information that can be used by platforms to improve search algorithms.