Distracted from Comparison: Product Design and Advertisement with Limited Attention

Johannes Johnen and Benson Tsz Kin Leung

No 2022017, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose designs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superficially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to distract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product information weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency labels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.

Keywords: Limited Attention; Product Design; Information Design; Market Competition (search for similar items in EconPapers)
JEL-codes: D83 L13 L15 (search for similar items in EconPapers)
Pages: 63
Date: 2022-04-12
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Citations: View citations in EconPapers (4)

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