Competition for Attention
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CitationBordalo, Pedro, Nicola Gennaioli, and Andrei Shleifer. 2013. Competition for Attention. National Bureau of Economic Research Technical Working Paper 19076: 1-41.
AbstractWe present a model of market competition and product differentiation in which consumers' attention is drawn to the products' most salient attributes. Firms compete for consumer attention via their choices of quality and price. With salience, strategic positioning of each product affects 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 "de-commoditized" quality salient equilibria. When the cost of producing quality changes, innovation can lead to a radical change in markets. In the context of financial innovation, the model generates the well documented phenomenon of "reaching for yield."
Citable link to this pagehttp://nrs.harvard.edu/urn-3:HUL.InstRepos:11880387
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