Horizontal product differentiation with limited attentive consumers

Marc P. Saur, Markus G. Schlatterer, Stefanie Y. Schmitt

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.

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Year of publication:	February 28, 2019
Authors:	Saur, Marc P. ; Schlatterer, Markus Georg ; Schmitt, Stefanie Y.
Published in:	Jahrestagung 2019 ; no. B13-V2 Session: Industrial Organisation - Theory ; V2
Publisher:	[Leipzig] : Verein für Socialpolitik
Subject:	Attention \| Horizontal Product Differentiation \| Hotelling \| Price Discrimination \| Produktdifferenzierung \| Product differentiation \| Theorie \| Theory \| Konsumentenverhalten \| Consumer behaviour \| Preisdifferenzierung \| Price discrimination \| Hotelling-Modell \| Hotelling model \| Hotellerie \| Hotel industry \| Produktgestaltung \| Product design \| Preiswettbewerb \| Price competition \| Duopol \| Duopoly