Competition for attention in the information (overload) age

Simon Anderson () and André de Palma ()

No 7286, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Limited consumer attention limits product market competition: prices are stochastically lower the more attention is paid. Ads compete to be the lowest price with other ads from the same sector and they compete for attention with ads from other sectors: equilibrium sector ad shares under free entry follow a CES form. When a sector gets more attractive, its advertising expands: others lose ad market share but may increase in absolute terms if sufficiently attractive. The "information hump" shows highest ad levels for intermediate attention levels when there is a decent enough chance of getting the message across and also of not being undercut by a cheaper offer. The Information Age takes off when the number of sectors grows, but total ad volume reaches an upper limit. Overall, advertising is excessive, though the allocation across sectors is optimal. Nonetheless, both large sectors and small ones can be blamed for misallocation of ads in using up scarce attention.

Keywords: advertising distribution; consumer attention; economics of attention; information age; information filtering; price dispersion; size distribution of firms (search for similar items in EconPapers)
JEL-codes: D11 D60 I0 L13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-mic, nep-mkt and nep-neu
Date: 2009-04
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