Information Signals in Sponsored Search: Evidence from Google’s BERT

This document explores how Google's implementation of the BERT algorithm in October 2019 impacted the sponsored search market. Analyzing changes in bidder competition and cost-per-click (CPC), the authors found that BERT generally increased the number of bidders but had varied effects on CPC depending on search query length. Shorter queries saw increased CPC, while longer queries experienced a decrease despite a rise in competition. A theoretical model is introduced to explain these findings, suggesting that the algorithm's ability to understand multi-dimensional query types (topic and context) is key, with better context identification potentially leading to lower CPC by improving advertiser differentiation and relevancy scoring.