The Effects of Ads on Beliefs and Implications for Consumer Search

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.