Why marketplace experimentation is harder than it seems

Classical statistical inference of experimental data assumes that the treatment affects the test group but not the control group. This assumption will typically be violated when experimenting in marketplaces because of general equilibrium effects: changing test demand affects the supply available to the control group. We illustrate this with an email marketing campaign performed by eBay. Ignoring test-control interference leads to estimates of the campaign's effectiveness which are too large by a factor of around two. We present the simple economics of this bias in a supply and demand framework, showing that the bias is larger in magnitude where there is more inelastic supply, and is positive if demand is elastic.