Modeling Competition over Multiple Variables under Limited Consumer Awareness*

Abstract

When analyzing firm competition over two strategic variables (e.g., quality and price), it is important to decide whether to model it as a one-stage or a two-stage game. Our analysis focuses on markets in which consumers are not aware of all alternatives. We find that, if consumers are sufficiently unaware, both the one-stage and the two-stage equilibria of the game that explicitly models limited awareness are close to the one-stage equilibrium of the standard game, which assumes full awareness. Therefore, markets in which consumers have limited awareness can be studied with standard models, provided that the one-stage game is analyzed.