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Competition for attention in the information (overload) age

  • S. Anderson

    (Department of Economics, University of Virginia - Uniiversity of Virginia)

  • André De Palma

    (ENS Cachan - École normale supérieure - Cachan, Department of Economics, Ecole Polytechnique - Polytechnique - X - CNRS, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)

Limited consumer attention limits product market competition: prices are stochastically lower the more attention is paid. Ads compete to be the lowest price in a sector but compete for attention with ads from other sectors: equilibrium ad shares follow a CES form. When a sector gets more proÞtable, its advertising expands: others lose ad market share. The "information hump" shows highest ad levels for intermediate attention levels. The Information Age takes off when the number of viable sectors grows, but total ad volume reaches an upper limit. Overall, advertising is excessive, though the allocation across sectors is optimal.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number hal-00517721.

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Date of creation: 2012
Date of revision:
Publication status: Published in RAND Journal of Economics, Wiley, 2012, 43 (1), pp.1-25. <10.1111/j.1756-2171.2011.00155.x>
Handle: RePEc:hal:cesptp:hal-00517721
DOI: 10.1111/j.1756-2171.2011.00155.x
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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. Josef Falkinger, 2008. "A welfare analysis of "junk" information and spam filters," SOI - Working Papers 0811, Socioeconomic Institute - University of Zurich.
  3. Avinash Dixit & Victor Norman, 1978. "Advertising and Welfare," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 1-17, Spring.
  4. Simon P. Anderson & André De Palma, 2008. "Information Congestion," Working Papers hal-00349516, HAL.
  5. 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.
  6. Bagwell, Kyle, 2007. "The Economic Analysis of Advertising," Handbook of Industrial Organization, Elsevier.
  7. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
  8. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
  9. Gene M. Grossman & Carl Shapiro, 1984. "Informative Advertising with Differentiated Products," Review of Economic Studies, Oxford University Press, vol. 51(1), pages 63-81.
  10. Stegeman, Mark, 1991. "Advertising in Competitive Markets," American Economic Review, American Economic Association, vol. 81(1), pages 210-23, March.
  11. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 465-491.
  12. Baye, Michael R. & Morgan, John, 2002. "Information gatekeepers and price discrimination on the internet," Economics Letters, Elsevier, vol. 76(1), pages 47-51, June.
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