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Who Benefits from Misleading Advertising?

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  • Keisuke Hattori
  • Keisaku Higashida

Abstract

type="main" xml:id="ecca12149-abs-0001"> Considering a model of price and misleading advertising competition between two brands producing horizontally and vertically differentiated brands, we investigate allocative implications of misinformation and related regulatory policies. Although misinformation distorts consumers' decision-making, misinformation can correct inefficiencies resulting from misallocation of goods, thereby increasing welfare. However, advertising competition may create a prisoner's dilemma for firms and reduce welfare, but smart consumers unaffected by misinformation and consumers preferring low-quality brands may gain. We also demonstrate how a biased policymaker who places different weights on producers' and consumers' surpluses behaves in response to misinformation disseminated by firms.

Suggested Citation

  • Keisuke Hattori & Keisaku Higashida, 2015. "Who Benefits from Misleading Advertising?," Economica, London School of Economics and Political Science, vol. 82(328), pages 613-643, October.
    • Handle: RePEc:bla:econom:v:82:y:2015:i:328:p:613-643
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    File URL: http://hdl.handle.net/10.1111/ecca.2015.82.issue-328
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    Cited by:

    1. Florian Baumann & Alexander Rasch, 2020. "Exposing false advertising," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1211-1245, August.
    2. Andrea Mangani & Barbara Pacini, 2025. "The Impact of Fines on Deceptive Advertising: Evidence from Italy," Journal of Consumer Policy, Springer, vol. 48(1), pages 23-50, March.
    3. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2018. "Deceptive Advertising with Rational Buyers," Management Science, INFORMS, vol. 64(3), pages 1291-1310, March.
    4. Baumann, Florian & Rasch, Alexander, 2017. "Injunctions against false advertising," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168142, Verein für Socialpolitik / German Economic Association.
    5. Keisuke Hattori & Keisaku Higashida, 2023. "Who should be regulated: Genuine producers or third parties?," Journal of Economics, Springer, vol. 138(3), pages 249-286, April.
    6. Gupta, Aastha, 2023. "Deceptive advertising, regulation and naive consumers," International Journal of Industrial Organization, Elsevier, vol. 91(C).
    7. Keisuke Hattori & Keisaku Higashida, 2015. "Should non-genuine products be expelled from markets?," Discussion Paper Series 126, School of Economics, Kwansei Gakuin University, revised Mar 2015.

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