DP7456 Consideration Sets and Competitive Marketing

Author(s): Kfir Eliaz, Ran Spiegler
Publication Date: September 2009
Keyword(s): Advertising, Bounded rationality, Consideration sets, Irrelevant alternatives, Limited attention, Marketing, Persuasion
JEL(s): C72, D03, D11, D21, D43
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7456

We study a market model in which competing firms use costly marketing devices to influence the set of alternatives which consumers perceive as relevant. Consumers in our model are boundedly rational in the sense that they have an imperfect perception of what is relevant to their decision problem. They apply well-defined preferences to a ?consideration set?, which is a function of the marketing devices employed by the firms. We examine the implications of this behavioral model in the context of a competitive market model, particularly on industry profits, vertical product differentiation, the use of marketing devices and consumers? conversion rates.