Francesco Fabbri from the University of California, Berkeley will present "Attention Holdup".

Abstract: A novel form of the holdup problem emerges in market interactions where a consumer invests in learning about product quality set by a producer. Flexible information acquisition, modeled using rational inattention, mitigates this holdup problem by enabling positive quality provision: in equilibrium, the producer randomizes between zero and a higher-than price quality. A trade-off arises. When attention costs decrease, high quality rises as the consumer learns about quality more precisely. However, by acquiring better information, the consumer loses commitment power and needs to trade less often to discourage producer deviations. When attention costs vanish, the holdup becomes inevitable: to deter deviations, the consumer never trades, causing the market to fail. Following this trade-off, high information or production costs and low prices increase profits by providing commitment benefits that enhance trade efficiency. A new refinement, preventing information from being acquired for free, uniquely selects this binary-quality equilibrium.