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Misleading advertising and minimum quality standards

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  • Hattori, Keisuke
  • Higashida, Keisaku

Abstract

This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards (MQSs) and certification criteria, when products are vertically differentiated in terms of their health/safety aspects. We investigate the welfare effect of regulating misinformation and strengthening MQSs. We find that the welfare effect of a decrease in misinformation crucially depends on the existing amount of misinformation; moreover, a more stringent MQS either improves or deteriorates welfare. Two effects figure strongly throughout our results. First, changes in misinformation and/or an MQS make price competition between firms more or less serious, causing changes in price and quantity. Second, these changes influence some consumers’ choices, leading them to change the products that they purchase. This change in consumption behavior increases or decreases inappropriate choices when misinformation is present. We extend the analysis to the case in which a high-quality firm’s quality investment is endogenously determined.

Suggested Citation

  • Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
  • Handle: RePEc:eee:iepoli:v:28:y:2014:i:c:p:1-14
    DOI: 10.1016/j.infoecopol.2014.04.004
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    3. 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.
    4. 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.
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    6. 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.
    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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    More about this item

    Keywords

    Advertising; Minimum quality standards; Misinformation; Vertical differentiation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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