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Competition for Attention

Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

No 19076, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each 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 cost of producing quality changes, innovation can lead to a radical change in markets. In the context of financial innovation, the model generates the well documented phenomenon of "reaching for yield".

JEL-codes: D03 D43 L13 M31 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Published as Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2016. "Competition for Attention," Review of Economic Studies, Oxford University Press, vol. 83(2), pages 481-513.

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Related works:
Journal Article: Competition for Attention (2016) Downloads
Working Paper: Competition for Attention (2013) Downloads
Working Paper: Competition for Attention Downloads
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