Competition drives producers of the best to invest most in promotion

Competition gives suppliers of the best products the incentives to invest the most in getting the attention of consumers. That is the conclusion of new research by Professors Paola Manzini and Marco Mariotti, published in the March 2018 issue of the Economic Journal.

But their study also recognises a key feature of the ''technology of attention'': namely, that when a supplier makes potential consumers aware of its product, it does not harm the chances of its rivals to attract attention. If sellers of inferior products – whether they are fruit or policies – can shout louder than their rivals, then salience may trump quality.

Competition has many virtues, the researchers note: it promotes low prices, efficiency and innovation. Their study uncovers a virtue of competition that has previously escaped attention: it is competition that makes the best suppliers also those who grab the most attention in the market.

If this weren''t the case, salience might trump quality. Consumers are faced with a myriad of products: dozens of cereal brands, hundreds of wines and computer models, thousands of houses.

Normal people, with limited time and attention, simply cannot attend to all the available options. They will consequently limit their choice to a handful of attention-grabbing products.

But then, it is vital for suppliers to capture the attention of consumers. Even the supplier of the best goods may fail to sell any unless it has first succeeded in making its products noticed.

This is why salience may trump quality. The cake sitting in the bottom aisle in the supermarket may be much tastier than the mediocre cake you grabbed in a hurry next to the checkout. How can we ensure that the showiest is also the best?

This research shows that competition is a force for good in providing the best suppliers with incentives to invest the most in becoming salient. While the detailed arguments are technical, the core logic for this conclusion can be described with a simple example.

Suppose you have developed an app that is better than the other existing app at what it does. A consumer who happened to examine both your app and a rival one would choose yours. Do you or your rival have more incentives to promote the app?

Think about this: if potential users become aware of your app, you don''t really care whether they also notice the rival one, for they will choose you, as yours is the best. So being noticed is all you care about.

On the other hand, your rival is worried that even if its product is noticed, it will lose to you in case yours is also noticed. But this means that your rival faces a risk that you don''t face. Its investment in promotion has more chance of coming to nothing than yours does.

It is precisely this aspect of the structure of incentives that makes you more eager than your rival to invest in promotion. So, in the end, you will be both the best and the one that grabs the most attention.

This logic is not limited to physical products: it extends to any other competitive context: people investing in hairdressing to grab the attention of a potential sexual partner; little known politicians making wild statements to get noticed; and so on.

For the logic to carry, however, one assumption must hold about the ''technology of attention'': namely, that when a supplier makes potential consumers aware of its product, it does not harm the chances of its rivals to attract attention.

This is true, for example, if the supplier places an ad somewhere to make customers aware. Whether they also pay attention to rival producers just depends on whether the latter also place an ad.

But suppose instead you are a seller in a crowded market, and the only way you have to attract attention is to shout. Those who shout the loudest get noticed, and the others do not.

In this case, it may happen that a consumer never goes to the best stall, because it has been attracted by the shouts of other inferior sellers hiding those dodgy fruits (or policies!) among the good ones.

''Competing for Attention: Is the Showiest Also the Best?'' by Paola Manzini and Marco Mariotti is published in the March 2018 issue of the Economic Journal. Paola Manzini is at the University of Sussex. Marco Mariotti is at Queen Mary University of London.