Horizontal product differentiation with limited attentive consumers

Markus Schlatterer, Marc Saur and Stefanie Schmitt

VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy from Verein für Socialpolitik / German Economic Association

Abstract: We analyze the effects of consumers' limited attention on welfare in a model of horizontal product differentiation. We present a novel approach of modeling limited attention: an attention radius. Each consumer only notices goods that are within her attention radius, i.e., goods that are sufficiently similar to her preferred version of the good. Limited attention induces firms to differentiate their products in a way that is beneficial to consumers. In addition, prices may be lower under limited than under full attention. Consumer surplus and welfare are not maximized under full attention but increase for some degree of limited attention.

Keywords: Attention; Horizontal Product Differentiation; Hotelling; Price Discrimination (search for similar items in EconPapers)
JEL-codes: D43 D91 L13 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com and nep-mic
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc19:203571

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