Working Paper: CEPR ID: DP9553
Authors: Geoffroy De Clippel; Kfir Eliaz; Kareen Rozen
Abstract: Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A firm's price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best offer in each market; but the enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers' radar.
Keywords: Limited Attention
JEL Codes: C72; D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Limited attention (D91) | Likelihood of finding the best price (D41) |
| Likelihood of finding the best price (D41) | Firm pricing strategies (L11) |
| Limited attention (D91) | Firm pricing strategies (L11) |
| Firm pricing strategies (L11) | Competition across markets (L13) |
| Firm pricing strategies (L11) | Average price paid by consumers (D19) |
| Limited attention (D91) | Consumer welfare (D69) |
| Distribution of partially attentive consumers (D16) | Firm pricing strategies (L11) |