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Horizontal product differentiation with limited attentive consumers

Author

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  • Schlatterer, Markus
  • Saur, Marc
  • Schmitt, Stefanie

Abstract

We analyze the effects of consumers' limited attention on welfare in a model of horizontal product differentiation. We present a novel approach of modeling limited attention: an attention radius. Each consumer only notices goods that are within her attention radius, i.e., goods that are sufficiently similar to her preferred version of the good. Limited attention induces firms to differentiate their products in a way that is beneficial to consumers. In addition, prices may be lower under limited than under full attention. Consumer surplus and welfare are not maximized under full attention but increase for some degree of limited attention.

Suggested Citation

  • Schlatterer, Markus & Saur, Marc & Schmitt, Stefanie, 2019. "Horizontal product differentiation with limited attentive consumers," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203571, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203571
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    References listed on IDEAS

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    Cited by:

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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