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Regulating Product Communication

Author

Listed:
  • Maarten C. W. Janssen
  • Santanu Roy

Abstract

Information regulation that penalizes deceptive communication by firms can have significant unintended consequences. We consider a market where competing firms communicate private information about product quality through a combination of pricing and direct communication (advertising or labeling) that may be false. A higher fine for lying reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it may lead to excessive disclosure. Low fines are always worse than no fines. High fines are welfare improving only if communication itself is inexpensive. Penalizing false claims may reduce profits of both high- and low-quality firms.

Suggested Citation

  • Maarten C. W. Janssen & Santanu Roy, 2022. "Regulating Product Communication," American Economic Journal: Microeconomics, American Economic Association, vol. 14(1), pages 245-283, February.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:1:p:245-83
    DOI: 10.1257/mic.20190187
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    Citations

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    Cited by:

    1. Xiuqun Chen & Shun-Chi Yu & Xuemei Sun & Dan Wang, 2023. "Investigating the Influence of Brand Communication and Brand Trust on Customer Commitment: An Examination from the Perspective of Customer Perception," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(2), pages 166-195, June.
    2. Fontes, Dalila B.M.M. & Homayouni, S. Mahdi & Gonçalves, José F., 2023. "A hybrid particle swarm optimization and simulated annealing algorithm for the job shop scheduling problem with transport resources," European Journal of Operational Research, Elsevier, vol. 306(3), pages 1140-1157.
    3. Bansal, Vaiddehi & Wallach, Jessica & Lira Brandão, Juliana & Lord, Sarah & Taha, Ninar & Akoglu, Tulay & Kiss, Ligia & Zimmerman, Cathy, 2023. "An intervention-focused review of modern slave labor in Brazil’s mining sector," World Development, Elsevier, vol. 171(C).

    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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