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Competition for attention in the information (overload) age

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  • Anderson, Simon P.
  • de Palma, André

Abstract

Limited consumer attention limits product market competition: prices are stochastically lower the more attention is paid. Ads compete to be the lowest price with other ads from the same sector and they compete for attention with ads from other sectors: equilibrium sector ad shares under free entry follow a CES form. When a sector gets more attractive, its advertising expands: others lose ad market share but may increase in absolute terms if sufficiently attractive. The "information hump" shows highest ad levels for intermediate attention levels when there is a decent enough chance of getting the message across and also of not being undercut by a cheaper offer. The Information Age takes off when the number of sectors grows, but total ad volume reaches an upper limit. Overall, advertising is excessive, though the allocation across sectors is optimal. Nonetheless, both large sectors and small ones can be blamed for misallocation of ads in using up scarce attention.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7286.

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Date of creation: Apr 2009
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Handle: RePEc:cpr:ceprdp:7286

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Related research

Keywords: advertising distribution; consumer attention; economics of attention; information age; information filtering; price dispersion; size distribution of firms;

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References

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  1. Timothy Van Zandt, 2004. "Information Overload in a Network of Targeted Communication," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 542-560, Autumn.
  2. Simon P. Anderson & André de Palma, 2009. "Information congestion," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 688-709.
  3. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  4. 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.
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  6. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-23, March.
  7. Baye, Michael R. & Morgan, John, 2002. "Information gatekeepers and price discrimination on the internet," Economics Letters, Elsevier, vol. 76(1), pages 47-51, June.
  8. Josef Falkinger, 2008. "A welfare analysis of "junk" information and spam filters," SOI - Working Papers 0811, Socioeconomic Institute - University of Zurich.
  9. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
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  11. 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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Cited by:
  1. Florian Hoffmann & Roman Inderst & Marco Ottaviani, 2013. "Hypertargeting, Limited Attention, and Privacy: Implications for Marketing and Campaigning," Working Papers 479, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  2. Chiao, Benjamin & MacKie-Mason, Jeffrey, 2012. "Using uncensored communication channels to divert spam traffic," Information Economics and Policy, Elsevier, vol. 24(3), pages 173-186.

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