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Limited Consumer Attention in International Trade

Title data

Egger, Hartmut ; Falkinger, Josef:
Limited Consumer Attention in International Trade.
In: Review of International Economics. Vol. 24 (November 2016) Issue 5 . - pp. 1096-1128. - 32 S..
ISSN 1467-9396
DOI: https://doi.org/10.1111/roie.12249

Official URL: Volltext

Abstract in another language

This paper introduces a model of limited consumer attention into an otherwise standard new trade theory model with love-of-variety preferences and heterogeneous firms. In this setting, we show that international integration needs not be welfare enhancing if the consumers' capacity to gather and process information is limited. Rather, it intensifies competition for scarce consumer attention, which causes mutual overbidding of producers in their advertising expenditures. The mutual overbidding renders advertising—which is informative in principle—wasteful and diverts purchases to imported goods at an inefficient scale. Wasteful advertising provides scope for policy intervention in the form of an advertising tax. However, if the tax instrument is not allowed to discriminate against foreign producers, it cannot eliminate inefficient diversion of consumer purchases to imports; hence it needs not be successful in securing gains from international integration in this framework.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: New trade theory; heterogeneous firms; gains from trade; love-of-variety preferences; limited attention; advertising
Subject classification: D11, F12, F15, L10, M37
Institutions of the University: Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics II > Chair Economics II - Univ.-Prof. Dr. Hartmut Egger
Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics
Faculties > Faculty of Law, Business and Economics > Department of Economics > Chair Economics II
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
Date Deposited: 14 Oct 2016 11:20
Last Modified: 14 Oct 2016 11:20
URI: https://eref.uni-bayreuth.de/id/eprint/34937