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Misleading advertising in duopoly

Author

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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.

Suggested Citation

  • Keisuke Hattori & Keisaku Higashida, 2012. "Misleading advertising in duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 1154-1187, August.
  • Handle: RePEc:cje:issued:v:45:y:2012:i:3:p:1154-1187
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    Citations

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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. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0024-4 is not listed on IDEAS
    3. 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.
    4. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, vol. 119(2), pages 183-185.
    5. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    6. Rhodes, Andrew & Wilson, Chris, 2015. "False Advertising," TSE Working Papers 15-614, Toulouse School of Economics (TSE), revised Oct 2017.
    7. Grundl, Serafin J. & Kim, You Suk, 2017. "Consumer Mistakes and Advertising : The Case of Mortgage Refinancing," Finance and Economics Discussion Series 2017-067, Board of Governors of the Federal Reserve System (U.S.).
    8. Salvatore Piccolo & Piero Tedeschi & Giovanni Ursino, 2015. "How limiting deceptive practices harms consumers," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 611-624, September.
    9. 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.
    10. 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.
    11. Baumann, Florian & Rasch, Alexander, 2017. "Injunctions against false advertising," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168142, Verein für Socialpolitik / German Economic Association.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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