Review of Economic Studies Vol. 83 No. 2 2016

Competition for Attention

Pedro Bordalo¹; Nicola Gennaioli^2,3; Andrei Shleifer^4,5,6

¹ Royal Holloway University of London · ² Institute for Economic Research · ³ Bocconi University · ⁴ National Bureau of Economic Research · ⁵ Harvard University · ⁶ Harvard University Press

Abstract

We present a model of market competition in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. Strategic positioning of a product affects how all other products are perceived. With this attention externality, depending on the cost of producing quality some markets exhibit "commoditized" price salient equilibria, while others exhibit "de-commoditized" quality salient equilibria. When the costs of quality change, innovation can lead to radical shifts in markets, as in the case of decommoditization of the coffee market by Starbucks. In the context of financial innovation, the model generates the phenomenon of "reaching for yield".

DOI

10.1093/restud/rdv048

Volume

83

Issue

2

Pages

481-513

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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