Distracted from Comparison: Product Design and Advertisement with Limited Attention

Johannes Johnen and Benson Tsz Kin Leung

No 17234, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 de- signs 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 superfi- cially 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 dis- tract 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 in- formation weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency la- bels 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; Distracting consumers (search for similar items in EconPapers)
JEL-codes: D83 L13 L15 (search for similar items in EconPapers)
Date: 2022-04
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