Read the article: The new dot com bubble is here: its called online advertising and answer the following questions:

a) (8 points) Why do you think advertisers and big companies keep advertising even when the experiments show that advertising dollars are not as effective? Describe the principal agent problem in the context of advertising and advertising industry. How did the article address this concept?

b) (6 points) What did eBay learn with their experiment on search advertising? Why do you think they got those results? (note: the original academic article that describes the eBay experiment is here).

c) (3 points) Briefly describe what surprised you the most after reading this article.

The co-founder of Simply Modern tweeted a long thread about how they changed their advertising investment drastically on Amazon. Below is the first tweet in the thread and I will include the relevant information from subsequent thread tweet below:

Next he wrote:

Problems - Paying for Organic Purchases: If our ad is #1 and we have the #5 organic placement, many organic customers are now buying through the ad. These sales make the advertising look overly profitable. In reality, they are inflating advertising returns and justifying more spend.

(7 points) Explain intuitively why in this situation the advertising returns (ROI) are inflated.

(3 points) Briefly draw the parallels of this remark to the findings of the Ebay paper described and linked above.

Bryan Porter @jbryanporter We are Amazon's \#1 drinkware supplier. In 2022 we wi sell over 4 million tumblers and water bottles. Over the past few years, we have spent over $10 million on Amazon ads. This month our budget went to $0. A thread about our change of heart with Amazon Advertising