Publication Date: July 2013
Consumers purchase multiple types of goods and services, but may be able to examine only a limited number of markets for the best price. We propose a simple model which captures these features, conveying some new insights. A ﬁrm’s price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of competition across markets. We fully characterize the resulting equilibrium, and show that the presence of partially attentive consumers improves consumer welfare as a whole. When consumers are less attentive, they are more likely to miss the best oﬀer in each market; but the enhanced cross-market competition decreases average price paid, as leading ﬁrms try to stay under the consumers’ radar.
See CFP: 1449