DP17234 Distracted from Comparison: Product Design and Advertisement with Limited Attention
We study how firms choose designs—of their products or product information—to divert consumers’ limited attention away from price comparison or towards it. Firms choose de- signs to affect the dispersion of product match values and thereby how consumers allocate their limited attention. Consumers with limited attention trade off breadth and depths of search: they either study fewer products in detail to learn their match value, or superfi- cially browse and compare prices of more products. We highlight a novel distraction effect of designs. Firms combine larger prices with designs that disperse match values to dis- tract consumers from price-comparison. We show that more-detailed product information disperse match values and allows firms to distract consumers more effectively from price comparison. This way, interventions that allow firms to disclose more-detailed product in- formation weaken competition and decrease consumer surplus. In turn, interventions that make information coarser and more easily-available information—like energy-efficiency la- bels and front-package food labels like nutriscores—increases competition and consumer surplus. These findings connect evidence of various informational interventions in the context of pension funds, advertisements, and food labels.