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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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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
    2. Subhadip Chakrabarti & Hans Haller, 2011. "An Analysis Of Advertising Wars," Manchester School, University of Manchester, vol. 79(1), pages 100-124, January.
    3. Keisuke Hattori & Keisaku Higashida, 2012. "Misleading advertising in duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1154-1187, August.
    4. Glaeser, Edward L. & Ujhelyi, Gergely, 2010. "Regulating misinformation," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 247-257, April.
    5. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
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    Cited by:

    1. Ursino, Giovanni & Piccolo, Salvatore & Tedeschi, Piero, 2012. "Deceptive advertising with rational buyers," MPRA Paper 42553, University Library of Munich, Germany.
    2. 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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