Simple Market Equilibria with Rationally Inattentive Consumers
AbstractWe study a market with rationally inattentive consumers who are unsure of the terms of the offers made by firms, but can acquire information about the terms at a cost. In a symmetric equilibrium, the price set by firms is continuously increasing in the cost of information for consumers and decreasing in the number of firms operating. In addition, favorable a priori information about a firm leads it to set a higher price, and a new entrant can increase demand for incumbents. When consumers have heterogeneous costs of information, firms selling low-quality products may choose to set the highest prices.
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Bibliographic InfoPaper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2011-025.
Length: 11 pages
Date of creation: Jan 2011
Date of revision:
Other versions of this item:
- Filip Matejka & Alisdair McKay, 2012. "Simple Market Equilibria with Rationally Inattentive Consumers," American Economic Review, American Economic Association, vol. 102(3), pages 24-29, May.
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