Inattentive consumers in markets for services

Inattentive consumers and product quality

This paper presents a model in which some consumers shop on the basis of price alone, without attention to product quality. A firm may “cheat” (i.e., cut quality) to exploit these inattentive consumers. In the unique symmetric equilibrium, firms follow a mixed strategy involving both price and quality dispersion. Firms are less likely to cheat when there are fewer inattentive consumers, which i...

Simple Market Equilibria with Rationally Inattentive Consumers†

We study a market with rationally inattentive consumers who are unsure of the terms of the offers made by firms, but can acquire information about the terms at a cost. In a symmetric equilibrium, the price set by firms is continuously increasing in the cost of information for consumers and decreasing in the number of firms operating. In addition, favorable a priori information about a firm lead...

Digital services for consumers

Learning from Market Share when Consumers are Rationally Inattentive

We characterize the evolution of market share when agents freely observe past shares and also engage in costly private learning. We show that popular options may remain unchosen. Even among chosen goods, long run market shares skew toward ex ante popular items. This rationalizes market share policies that encourage experimentation. We show that an outside observer with rich data may be better a...

Medicalization, markets and consumers.

This paper examines the impact of changes in the medical marketplace on medicalization in U.S. society. Using four cases (Viagra, Paxil, human growth hormone and in vitro fertilization), we focus on two aspects of the changing medical marketplace: the role of direct-to-consumer advertising of prescription drugs and the emergence of private medical markets. We demonstrate how consumers and pharm...