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 aects 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\decommoditized" 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 coee market by Starbucks. In the context of nancial innovation, the model generates the phenomenon of \reaching for yield".

Competition for attention

GENNAIOLI, NICOLA;
2016

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 aects 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\decommoditized" 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 coee market by Starbucks. In the context of nancial innovation, the model generates the phenomenon of \reaching for yield".
2015
Bordalo, Pedro; Gennaioli, Nicola; Shleifer, Andrei
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11565/3984473
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