Multiproduct Competition, Informative Advertising and Cognitive Limitations

Multiproduct Competition, Informative Advertising and Cognitive Limitations In several product categories, such as cereals, ice cream, and detergents, competing firms advertise a variety of products designed to meet the needs of their diverse consumers. Although consumers are exposed to thousands of such product advertisements in a day, they pay attention to only a very small fraction of these advertisements because of their cognitive limitations. Using a novel model of multiproduct competition and informative advertising in a horizontally differentiated market, we examine how consumers’ limited attention span affects a firm’s productline length. Our analysis shows that the number of products offered by a monopolist will not exceed consumers’ attention span, if congesting consumers’ attention span could adversely affect the effective reach of its product advertising. On the contrary, we will observe product proliferation and advertising clutter in a duopoly. Behavioral research suggests that adding many products under a brand umbrella weakens the linkages between the brand and its associated products leading to brand dilution. As such, only if the prospect of brand dilution is weak, a monopolist increases its productline length. In a duopoly, however, brand dilution softens competition and can increase the number of products offered by competing firms. In choosing between product and brand advertising, unlike a monopolist, the duopolists prefer product advertising; but increase the emphasis placed on brand advertising when consumers’ attention span decreases.