Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264887 
Year of Publication: 
2022
Series/Report no.: 
BERG Working Paper Series No. 184
Publisher: 
Bamberg University, Bamberg Economic Research Group (BERG), Bamberg
Abstract: 
I analyze the implication of consumers' limited attention to quality differences on market outcomes and welfare. I model this limited attention to quality differences with a perception threshold: Consumers only perceive quality differences between goods that exceed the consumers' perception threshold. The model allows for two types of equilibria: equilibria with distinguishable and equilibria with indistinguishable qualities. I show that horizontal product differentiation, which gives firms market power, affects equilibrium selection. If firms are horizontally differentiated, firms produce goods with indistinguishable qualities. Then, limited attention harms consumers and benefits firms. In contrast, if firms are not horizontally differentiated, firms produce goods with distinguishable qualities. Then, limited attention has no effect on consumers' welfare or firms' profits.
Subjects: 
Limited Attention
Perception Threshold
Product Differentiation
Product Quality
JEL: 
D43
D91
L13
ISBN: 
978-3-949224-05-8
Document Type: 
Working Paper

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