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Competition for attention in the Information (overload) Age

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  • Simon P. Anderson
  • André de Palma

Abstract

Limited consumer attention limits product market competition: prices are stochastically lower the more attention is paid. Ads compete to be the lowest price in a sector but compete for attention with ads from other sectors: equilibrium ad shares follow a CES form. When a sector gets more proÞtable, its advertising expands: others lose ad market share. The "information hump" shows highest ad levels for intermediate attention levels. The Information Age takes off when the number of viable sectors grows, but total ad volume reaches an upper limit. Overall, advertising is excessive, though the allocation across sectors is optimal.

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File URL: http://hdl.handle.net/10.1111/j.1756-2171.2011.00155.x
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Bibliographic Info

Article provided by RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 43 (2012)
Issue (Month): 1 (03)
Pages: 1-25

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Handle: RePEc:bla:randje:v:43:y:2012:i:1:p:1-25

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  1. Simon P. Anderson & André de Palma, 2006. "Information Congestion," Virginia Economics Online Papers 364, University of Virginia, Department of Economics.
  2. Kyle Bagwell, 2005. "The Economic Analysis of Advertising," Discussion Papers 0506-01, Columbia University, Department of Economics.
  3. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
  4. Josef Falkinger, 2008. "A welfare analysis of "junk" information and spam filters," Working Papers 0811, University of Zurich, Socioeconomic Institute.
  5. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-23, March.
  6. Baye, Michael R. & Morgan, John, 2002. "Information gatekeepers and price discrimination on the internet," Economics Letters, Elsevier, vol. 76(1), pages 47-51, June.
  7. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
  8. Van Zandt, Timothy, 2001. "Information Overload in a Network of Targeted Communication," CEPR Discussion Papers 2836, C.E.P.R. Discussion Papers.
  9. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  10. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
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