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Misleading advertising in duopoly

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  • Keisuke Hattori
  • Keisaku Higashida

Abstract

This paper builds a model of strategic misleading advertising in duopolistic markets with horizontal product differentiation and advertising externality between firms. We investigate the effects of regulating misinformation on market competition, behaviour of firms, and social welfare. We show that the degree of advertising externality and the magnitude of advertising costs are crucial for determining the welfare effects of several regulations, including prohibiting misleading advertising, educating consumers, taxing production, and taxing misleading advertising. We extend the model by introducing heterogeneous consumers, heterogeneous production costs between firms, and the degree of advertising informativeness. Our results have important policy implications for the debate regarding regulation of advertising, especially direct-to-consumer advertising for prescription and over-the-counter drugs.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 45 (2012)
Issue (Month): 3 (August)
Pages: 1154-1187

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Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:1154-1187

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  1. Why American politicians lie
    by Economic Logician in Economic Logic on 2011-04-08 14:20:00
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Cited by:
  1. Keisuke Hattori & Keisaku Higashida, 2011. "When Government Misleads US: Sending Misinformation as Protectionist Devices," Discussion Paper Series 75, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  2. Keisuke Hattori & Keisaku Higashida, 2012. "Who Benefits from Misleading Advertising?," Discussion Paper Series 85, School of Economics, Kwansei Gakuin University, revised Mar 2012.
  3. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, vol. 119(2), pages 183-185.
  4. Ursino, Giovanni & Piccolo, Salvatore & Tedeschi, Piero, 2012. "Deceptive advertising with rational buyers," MPRA Paper 42553, University Library of Munich, Germany.
  5. Keisuke Hattori & Keisaku Higashida, 2011. "Misleading Advertising and Minimum Quality Standards," Discussion Paper Series 74, School of Economics, Kwansei Gakuin University, revised Aug 2011.

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