Competition for Attention

Pedro Bordalo, Nicola Gennaioli and Andrei Shleifer

Working Paper from Harvard University OpenScholar

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?.

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