Competition for Attention in the Information (Overload) Age

46 Pages Posted: 15 Jul 2009

See all articles by Simon P. Anderson

Simon P. Anderson

University of Virginia - Department of Economics

André de Palma

Institut Universitaire de France

Date Written: April 2009

Abstract

Limited consumer attention limits product market competition: prices are stochastically lower the more attention is paid. Ads compete to be the lowest price with other ads from the same sector and they compete for attention with ads from other sectors: equilibrium sector ad shares under free entry follow a CES form. When a sector gets more attractive, its advertising expands: others lose ad market share but may increase in absolute terms if sufficiently attractive. The "information hump" shows highest ad levels for intermediate attention levels when there is a decent enough chance of getting the message across and also of not being undercut by a cheaper offer. The Information Age takes off when the number of sectors grows, but total ad volume reaches an upper limit. Overall, advertising is excessive, though the allocation across sectors is optimal. Nonetheless, both large sectors and small ones can be blamed for misallocation of ads in using up scarce attention.

Keywords: advertising distribution, consumer attention, economics of attention, information age, information filtering, price dispersion, size distribution of firms

JEL Classification: D11, D60, I0, L13

Suggested Citation

Anderson, Simon P. and de Palma, André, Competition for Attention in the Information (Overload) Age (April 2009). CEPR Discussion Paper No. DP7286, Available at SSRN: https://ssrn.com/abstract=1433883

Simon P. Anderson (Contact Author)

University of Virginia - Department of Economics ( email )

P.O. Box 400182
Charlottesville, VA 22904-4182
United States
804-924-3861 (Phone)
804-982-2904 (Fax)

André De Palma

Institut Universitaire de France ( email )

103, bld Saint-Michel
75005 Paris
France

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