Product lines, product design, and limited attention

Abstract

We analyze how firms design their product lines when facing customers with limited attention. We assume that consumers simplify complex decision problems by neglecting several of the relevant aspects. Whether and to what extent a customer pays attention to an attribute of a product depends on the importance of the attribute as well as its dispersion in the set of alternatives. A firm may thus influence its customers' attention through the range of products it makes available. We show that a firm can increase its profit by introducing additional goods that have the sole function of manipulating consumer attention. Hence, even with a homogenous consumer population our model can explain product differentiation. We derive several results on how a firm can effectively manipulate its customers' attention.

Range‐Dependent Attribute Weighting in Consumer Choice: An Experimental Test

“…Models of choice‐set dependence are still developing and this paper only considers a subset of prominent theories. Similar models include Cunningham (2013) and Arad and Maltz (2019); related approaches include limited attention models (Gabaix (2014), Dahremöller and Fels (2015)), computational models (Tsetsos, Usher, and Chater (2010)), informational asymmetries (Kamenica (2008)), and models of bargain utility (Jahedi (2016)). The approaches I focus on in this paper were chosen primarily for their structural similarity and their amenability to experimental testing.…”

Noncompensatory consideration and compensatory choice: an application to Stackelberg competition

“…The paper is related to the literature on bounded rationality and industrial organization. 6 Both Bordalo, Gennaioli and Shleifer (2013) and Dahremoeller and Fels (2013) propose a multi-attribute model in which consumers may devote more attention to an attribute relative to another, attributes are non-binary, and salience is endogenous. Unlike my model, Bordalo, Gennaioli and Shleifer (2013) assume that the consumer's consideration set always coincides with the feasible set and the salience of a product's attribute is an increasing function of the relative distance between its value and the average of that attribute value across feasible products.…”

Pricing and Product Positioning with Relative Consumer Preferences*

“…See for example,Azar [2007] andBordalo et al [2013] for overviews of experimental and empirical evidence supporting relative thinking and context-dependent preferences.3 See also relatedlyKoszegi and Szeidl [2013] andBushong et al [2021]. Other contributions, such asAzar [2008];Azar [2014], already start with (variations of) a direct specification of relative thinking.4 Contributions in this vein go back at least toHuber et al [1982] orSimonson [1989], and have more recently been put forward byDahremöller and Fels [2015] andHerweg et al [2017], among others.5 We review the related literature at the end of this introduction.© 2023 The Authors. The Journal of Industrial Economics published by The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd.…”

“…As mentioned in an earlier footnote,Dahremöller and Fels [2015] provide a similar analysis in a monopoly setting.8 Relatedly,Azar [2014] also considers competition between two (horizontally differentiated) multiproduct firms selling one low and one high-quality product each, where consumers care both about absolute and relative price differences to (exogenously given) reference prices for either product. However, firms' product selection is not modeled.© 2023 The Authors.…”