Monday, September 2, 2013
Posted by D. Daniel Sokol
Geoffroy de Clippel (Dept. of Economics, Brown University), Kfir Elias (Tel Aviv University & University of Michigan, Ann Arbor), Kareen Rozen (Cowles Foundation, Yale University) describe Competing for Consumer Inattention.
ABSTRACT: Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm's price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best offer in each market; but the enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers' radar.