Discussion Paper

No. 2017-89 | October 24, 2017
Price competition and limited attention

Abstract

The paper develops a model of price competition in presence of consumers with limited attention. Education and obfuscation marketing strategies are studied. It is shown that firms in highly competitive industries have incentives to obfuscate, but firms in low competitive industries have not.

Data Set

  • sup_figures.xlsx
    [application/vnd.openxmlformats-officedocument.spreadsheetml.sheet, 169K]

JEL Classification:

D03, D11, D43

Assessment

  • Downloads: 184

Links

Cite As

Alexander Karpov (2017). Price competition and limited attention. Economics Discussion Papers, No 2017-89, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2017-89


Comments and Questions


Gerasimos Soldatos - article review
October 26, 2017 - 08:07

This paper deals with one interesting but often neglected aspect of industrial economics. It is a good paper, which deserves to be published as it is.


Anonymous - Referee Report 1
November 15, 2017 - 07:51

The paper proposes a price-competition model with differentiated products.
There are two firms located at the extreme of the Hotelling line.
Firms simultaneously choose a price and consumers are uniformly distributed on the line and have a positive transportation cost.
The author examines a benchmark case, which ...[more]

... is the same as standard Hotelling - and a variant, in which a fraction of consumers do not make a price comparison.

Below are my comments.
- The proposed model consists of a simple extension of Varian(1980)'s model of sales that allows products to be horizontally differentiated. The behavioural industrial organization literature has clearly moved on from Varian. For example, several models have endogenized the fraction of consumers that do not make a price comparison (see Carlin (2009), Piccione and Spiegler(2012), Chioveaun and Zhou (2013)). Given the current state of the literature, I am not sure whether the proposed model contributes to its advancement.
- It is true that the idea of consideration set is captured in the model, but I do not see how that relates with the idea of attention filter in Masatlioglu et al, according to which if you remove from a menu an alternative that is not considered your attention filter does not change.
- The author fails to discuss some key literature, such as Spiegler(2012)'s book and a few other papers mentioned above.
- The paper is not well-written. E.g. what the author calls utility function is actually an indirect utility function.
Also, it would be useful to see some proofs or at least the main steps.