Competition for Attention

Bordalo, Pedro, Gennaioli, Nicola and Shleifer, Andrei (2016) Competition for Attention. Review of Economic Studies, 83 (2). pp. 481-513.

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 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 costs of quality change, innovation can lead to radical shifts in markets, as in the case of decommoditization of the coffee market by Starbucks. In the context of financial innovation, the model generates the phenomenon of "reaching for yield".

Item Type: Article
Keywords: salience, commoditization, reach for yield, finance
Subject(s): Finance
Date Deposited: 11 Jul 2016 15:10
Last Modified: 22 Feb 2017 18:23
Funders: not applicable
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6179

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