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Sponsored Search: Do Organic Results help or hurt the Performance and under what conditions?

We study the relative impact of competing links in organic and sponsored search results on the performance of sponsored search ads. We use data generated through a field experiment for several keywords from the ad campaign of an online retailer. Using a hierarchical Bayesian model, we measure the impact of competition on both clickthrough rate and conversion rate of sponsored search ads for these keywords. We find that the competitor links in organic results have a higher impact on the performance as compared to the competitor links in sponsored results. We also find that competition has a greater influence on the conversion performance as compared to the click through performance. Our results inform advertisers on the impact of organic results on their performance. Our results reveal inefficiency in the current auction mechanism as the click performance may not reveal the true quality of advertisers.