Competing for Consumer Inattention∗

Consumers purchase multiple types of goods, 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 new insights. A firm’s price can deflect or draw attention to its market, and consequently, limited attention introduces a new dimension of cross-market competition. We characterize the equilibrium, and show that having partially attentive consumers improves consumer welfare. With less attention, consumers are more likely to miss the best offers; but enhanced cross-market competition decreases average price paid, as leading firms try to stay under the consumers’ radar. ∗We are grateful to Phil Reny, Ran Spiegler, Bruno Strulovici, and three anonymous referees for valuable suggestions, and Xiaosheng Mu for excellent research assistance. †Brown University, Department of Economics. ‡Tel Aviv University and the University of Michigan Ann Arbor, Departments of Economics. §Yale University, Department of Economics and Cowles Foundation. Rozen thanks the NSF for financial support under grant SES-0919955.