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Horizontal product differentiation with limited attentive consumers

Author

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  • Saur, Marc P.
  • Schlatterer, Markus G.
  • Schmitt, Stefanie Yvonne

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.

Suggested Citation

  • Saur, Marc P. & Schlatterer, Markus G. & Schmitt, Stefanie Yvonne, 2019. "Horizontal product differentiation with limited attentive consumers," BERG Working Paper Series 143, Bamberg University, Bamberg Economic Research Group.
    • Handle: RePEc:zbw:bamber:143
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Attention; Horizontal Product Differentiation; Hotelling; Price Discrimination;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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