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Competing for Consumer Inattention

Author

Listed:
  • Geoffroy De Clippel
  • Kfir Eliaz
  • Kareen Rozen

Abstract

Consumers purchase multiple types of goods but may be able to examine only a limited number of markets for the best price. We propose a simple model that captures these features, conveying new insights. A firm's price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of cross-market competition. We characterize the equilibrium and show that having partially attentive consumers improves consumer welfare. With less attention, consumers are more likely to miss the best offers; but enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers' radar.
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Suggested Citation

  • Geoffroy De Clippel & Kfir Eliaz & Kareen Rozen, 2013. "Competing for Consumer Inattention," Levine's Working Paper Archive 786969000000000765, David K. Levine.
  • Handle: RePEc:cla:levarc:786969000000000765
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    References listed on IDEAS

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    1. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 481-513.
    2. Mark Armstrong & Yongmin Chen, 2009. "Inattentive Consumers and Product Quality," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 411-422, 04-05.
    3. Xavier Gabaix & David Laibson, 2006. "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(2), pages 505-540.
    4. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
    5. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    6. Woodford, Michael, 2009. "Information-constrained state-dependent pricing," Journal of Monetary Economics, Elsevier, vol. 56(S), pages 100-124.
    7. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-1579, September.
    8. John K.‐H. Quah & Bruno Strulovici, 2012. "Aggregating the Single Crossing Property," Econometrica, Econometric Society, vol. 80(5), pages 2333-2348, September.
    9. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    10. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    11. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    12. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
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    Citations

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    Cited by:

    1. Persson, Petra, 2013. "Attention Manipulation and Information Overload," Working Paper Series 995, Research Institute of Industrial Economics.
    2. Takeshi Murooka & Marco A. Schwarz, 2016. "The Timing of Choice-Enhancing Policies," CESifo Working Paper Series 5983, CESifo Group Munich.
    3. Ran Spiegler, 2015. "On the Equilibrium Effects of Nudging," The Journal of Legal Studies, University of Chicago Press, vol. 44(2), pages 389-416.
    4. Michael Grubb, 2015. "Behavioral Consumers in Industrial Organization: An Overview," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 247-258, November.
    5. Michael D. Grubb, 2015. "Behavioral Consumers in Industrial Organization," Boston College Working Papers in Economics 879, Boston College Department of Economics.
    6. Mark Dean & Ozgur Kibris & Yusufcan Masatlioglu, 2014. "Limited Attention and Status Quo Bias," Working Papers 2014-11, Brown University, Department of Economics.
    7. Gerasimou, Georgios & Papi, Mauro, 2015. "Oligopolistic Competition with Choice-Overloaded Consumers," MPRA Paper 68509, University Library of Munich, Germany.
    8. repec:eee:eecrev:v:101:y:2018:i:c:p:330-353 is not listed on IDEAS
    9. repec:eee:jetheo:v:169:y:2017:i:c:p:93-127 is not listed on IDEAS
    10. Manzini, Paola & Mariotti, Marco, 2014. "Competing for Attention: Is the Showiest also the Best?," SIRE Discussion Papers 2014-015, Scottish Institute for Research in Economics (SIRE).
    11. Valentino Dardanoni & Paola Manzini & Marco Mariotti & Christopher J. Tyson, 2018. "Inferring Cognitive Heterogeneity from Aggregate Choices," Working Paper Series 1018, Department of Economics, University of Sussex.
    12. Valentino Dardanoni & Paola Manzini & Marco Mariotti & Christopher J. Tyson, 2017. "Inferring Cognitive Heterogeneity from Aggregate Choices," Discussion Paper Series, Department of Economics 201701, Department of Economics, University of St. Andrews, revised 25 May 2017.
    13. Eliaz, Kfir & Oren-Kolbinger, Orli & Weisburd, Sarit, 2017. "Limited Attention, Salience and Changing Prices: Evidence from a Field Experiment in Online Supermarket Shopping," CEPR Discussion Papers 12014, C.E.P.R. Discussion Papers.
    14. Kfir Eliaz & Ran Spiegler, 2015. "Beyond “Ellison’s Matrix”: New Directions in Behavioral Industrial Organization," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 259-272, November.
    15. Laura Doval, 2014. "Whether or not to open Pandora's box," Discussion Papers 1574, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    16. Liang, Hanchao & Yang, Chunpeng & Zhang, Rengui & Cai, Chuangqun, 2017. "Bounded rationality, anchoring-and-adjustment sentiment, and asset pricing," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 85-102.
    17. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    18. Inderst, Roman & Obradovits, Martin, 2015. "Too Much Attention on Low Prices? Loss Leading in a Model of Sales with Salient Thinkers," CEPR Discussion Papers 10813, C.E.P.R. Discussion Papers.
    19. Mu, Xiaosheng, 2015. "Log-concavity of a mixture of beta distributions," Statistics & Probability Letters, Elsevier, vol. 99(C), pages 125-130.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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