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Attention competition


Hefti, Andreas M. Attention competition. 2011, University of Zurich, Faculty of Economics.

Abstract

In modern economies the information problem is less one of getting information but one of
receiving too much information. This abundance of information creates a scarcity of attention
and, if information senders can influence their chance of perception, a competition for attention
aside the conventional economic competition e.g. for consumer budget. The following two facts
are well documented by marketing and psychological research and serve as main building blocks
for my model: 1) consumers are not capable of considering the entire set of items if this set is
large. 2) information senders can positively influence their chance of perception by sending a
relative stronger signal. Using a game theoretic, microfounded approach I investigate how the
interdependence of economic and perceptional competition affect the market equilibrium at the
positive level. The main results are
• In an information rich economy traditional economic variables as market prices reflect
psychological limitations of consumers which implies that market size and other traditional
measures of competition may give misleading measures of competition.
• In general, whether firms benefit or not from perceptual limitations of consumers depends
on how well firms can influence their chance of perception (the toughness of the attention
competition) and how much revenue they can extract from consumers (the severity of the
economic competition).
The more the items are substitutable the more likely firms are to extract additional profits
because of limited attention, which implies larger markets to occur under free entry.
Using a standard model of circular product differentiation I show that if consumers are inattentive
then equilibrium diversity and prices are higher and consumers choose a ”bad” variety
more often compared to the hypothetical case of unlimited attention capacities.
This shows that if the allocation problem of attention is left to be solved by the market this
might result in a very undesirable result.
Further, the implications of limited attention for models of informative advertising is discussed.
I show that the cause why consumers have limited information (because they receive only little
information or because of limited attention) matters for policy implications. Under limited
attention the advice originating from models of informative advertising may have no or the
wrong effect if limited attention is not taken into account. Moreover, models of informative
advertising without limited attention have serious problems matching the pattern of the U.S.
advertising data of the last three decades.
Finally, I extend the game theoretic literature on uniqueness and stability by some further
tools for symmetric games which help to establish certain results of my models but also are of
self-interest.

Abstract

In modern economies the information problem is less one of getting information but one of
receiving too much information. This abundance of information creates a scarcity of attention
and, if information senders can influence their chance of perception, a competition for attention
aside the conventional economic competition e.g. for consumer budget. The following two facts
are well documented by marketing and psychological research and serve as main building blocks
for my model: 1) consumers are not capable of considering the entire set of items if this set is
large. 2) information senders can positively influence their chance of perception by sending a
relative stronger signal. Using a game theoretic, microfounded approach I investigate how the
interdependence of economic and perceptional competition affect the market equilibrium at the
positive level. The main results are
• In an information rich economy traditional economic variables as market prices reflect
psychological limitations of consumers which implies that market size and other traditional
measures of competition may give misleading measures of competition.
• In general, whether firms benefit or not from perceptual limitations of consumers depends
on how well firms can influence their chance of perception (the toughness of the attention
competition) and how much revenue they can extract from consumers (the severity of the
economic competition).
The more the items are substitutable the more likely firms are to extract additional profits
because of limited attention, which implies larger markets to occur under free entry.
Using a standard model of circular product differentiation I show that if consumers are inattentive
then equilibrium diversity and prices are higher and consumers choose a ”bad” variety
more often compared to the hypothetical case of unlimited attention capacities.
This shows that if the allocation problem of attention is left to be solved by the market this
might result in a very undesirable result.
Further, the implications of limited attention for models of informative advertising is discussed.
I show that the cause why consumers have limited information (because they receive only little
information or because of limited attention) matters for policy implications. Under limited
attention the advice originating from models of informative advertising may have no or the
wrong effect if limited attention is not taken into account. Moreover, models of informative
advertising without limited attention have serious problems matching the pattern of the U.S.
advertising data of the last three decades.
Finally, I extend the game theoretic literature on uniqueness and stability by some further
tools for symmetric games which help to establish certain results of my models but also are of
self-interest.

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Additional indexing

Item Type:Dissertation
Referees:Schmutzler Armin, Falkinger Josef
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:2011
Deposited On:17 Jan 2012 19:12
Last Modified:05 Apr 2016 15:25
Number of Pages:223
Related URLs:http://opac.nebis.ch/F/?local_base=NEBIS&CON_LNG=GER&func=find-b&find_code=SYS&request=006496676
Other Identification Number:merlin-id:4910

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