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Competition for Attention

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  • Pedro Bordalo
  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

We present a model of market competition in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. Strategic positioning of a 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 costs of quality change, innovation can lead to radical shifts in markets, as in the case of decommoditization of the coffee market by Starbucks. In the context of financial innovation, the model generates the phenomenon of ?reaching for yield?.

Suggested Citation

  • Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, "undated". "Competition for Attention," Working Paper 312541, Harvard University OpenScholar.
    • Handle: RePEc:qsh:wpaper:312541
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    File URL: http://scholar.harvard.edu/shleifer/node/312541
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    References listed on IDEAS

    as
    1. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261, Decembrie.
    2. Persson, Petra, 2018. "Attention manipulation and information overload," Behavioural Public Policy, Cambridge University Press, vol. 2(1), pages 78-106, May.
    3. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - 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; Personnel Economics - - Marketing and Advertising - - - Marketing

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