Competition for Attention
AbstractWe present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each product affects how all other products are perceived. With this attention externality, depending on the cost of producing quality some markets exhibit “commoditized” price salient equilibria, while others exhibit “de-commoditized” quality salient equilibria. When the cost of producing quality changes, innovation can lead to a radical change in markets. In the context of financial innovation, the model generates the well documented phenomenon of “reaching for yield”.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19076.
Date of creation: May 2013
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Other versions of this item:
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-COM-2013-06-04 (Industrial Competition)
- NEP-MIC-2013-06-04 (Microeconomics)
- NEP-MKT-2013-06-04 (Marketing)
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