Product Lines, Product Design and Limited Attention

Abstract:     
We analyze how firms design their product lines when facing customers with limited attention. We assume that consumers simplify complex decision problems by neglecting several of the relevant aspects. Whether and to what extent a customer pays attention to an attribute of a product depends on the importance of the attribute as well as its dispersion in the set of alternatives. A firm may thus influence its customers' attention through the range of products it makes available. We show that a firm can increase its profit by introducing goods that have the sole function of manipulating consumer attention. In consequence, our model can explain product differentiation even with a homogenous consumer population. We derive several results on how a firm can profitably employ such manipulating goods.

Number of Pages in PDF File: 41

Keywords: Limited Attention, Salience, Focus, Product Design, Product Lines

JEL Classification: D42, L12, L15

working papers series