Publication type: Article in scientific journal
Type of review: Peer review (publication)
Title: Limited attention, competition and welfare
Authors: Hefti, Andreas
DOI: 10.1016/j.jet.2018.09.012
Published in: Journal of Economic Theory
Volume(Issue): 178
Page(s): 318
Pages to: 359
Issue Date: Nov-2018
Publisher / Ed. Institution: Elsevier
ISSN: 0022-0531
Language: English
Subjects: Attention; Imperfect competition; Bounded rationality; Product differentiation; Salience; Contest theory
Subject (DDC): 658.8: Marketing management
Abstract: This article presents a tractable framework that embeds the allocation of limited attention into competition theory. Motivated by evidence from psychology and marketing a setting is studied where firms can manipulate consumer attention and compete in prices among perceived alternatives. The introduction of limited attention changes the positive and normative predictions obtained from otherwise standard models, such as Salop-style competition. Further, the model identifies when limited attention is beneficial or harmful to firms, and explains why the individually rational decision to become less attentive in presence of more choice options may be catalyzed to a collective inattention trap over the market mechanism.
Fulltext version: Published version
License (according to publishing contract): Licence according to publishing contract
Departement: School of Management and Law
Organisational Unit: Center for Economic Policy (FWP)
Appears in collections:Publikationen School of Management and Law

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