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 leads it to set a higher price, and a new entrant can increase demand for incumbents. When consumers have heterogeneous costs of information, firms selling low-quality products may choose to set the highest prices.
Year of publication: |
2012
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Authors: | Matejka, Filip ; McKay, Alisdair |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 102.2012, 3, p. 24-29
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Publisher: |
American Economic Association - AEA |
Saved in:
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