Arbeitspapier
Limited Consumer Attention in International Trade
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 trade liberalization needs not be welfare enhancing if the consumers' capacity to gather and process information is limited. Rather, it intensifies competition for scarce consumer attention, thereby triggering wasteful advertising, and it may divert purchases to imported goods at an inefficient scale. Wasteful advertising provides scope for policy intervention in the form of an advertising tax. However, the tax instrument cannot eliminate inefficient diversion of consumer purchases to imports. Therefore, even under an optimal advertising tax, neither a fall in transport costs nor advancements in the global distribution of information need generate gains from trade in this framework.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 4166
- Classification
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Wirtschaft
Consumer Economics: Theory
Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
Economic Integration
Market Structure, Firm Strategy, and Market Performance: General
Advertising
- Subject
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new trade theory
heterogeneous firms
gains from trade
love-of-variety preferences
limited attention
advertising
- Event
-
Geistige Schöpfung
- (who)
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Egger, Hartmut
Falkinger, Josef
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2013
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Egger, Hartmut
- Falkinger, Josef
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2013
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