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Misleading Advertising in Duopoly

Author

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  • Keisuke Hattori

    () (Faculty of Economics, Osaka University of Economics)

  • Keisaku Higashida

    () (School of Economics, Kwansei Gakuin University)

Abstract

In this paper, we build 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, behavior 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 then extend the model by introducing two types of heterogeneities; heterogeneous consumers and heterogeneous production costs between firms.

Suggested Citation

  • Keisuke Hattori & Keisaku Higashida, 2011. "Misleading Advertising in Duopoly," Discussion Paper Series 69, School of Economics, Kwansei Gakuin University, revised Mar 2011.
  • Handle: RePEc:kgu:wpaper:69
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    1. Why American politicians lie
      by Economic Logician in Economic Logic on 2011-04-08 19:20:00

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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. Matsumura, Toshihiro & Sunada, Takeaki, 2013. "Advertising competition in a mixed oligopoly," Economics Letters, Elsevier, vol. 119(2), pages 183-185.
    3. Mikhail Drugov & Marta Troya-Martinez, 2018. "Vague lies and lax standards of proof: On the law and economics of advice," Working Papers w0246, Center for Economic and Financial Research (CEFIR).
    4. Hattori, Keisuke & Higashida, Keisaku, 2014. "Misleading advertising and minimum quality standards," Information Economics and Policy, Elsevier, vol. 28(C), pages 1-14.
    5. Andrew Rhodes & Chris M. Wilson, 2018. "False advertising," RAND Journal of Economics, RAND Corporation, vol. 49(2), pages 348-369, June.
    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.
    8. 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.
    9. repec:kap:enreec:v:68:y:2017:i:2:d:10.1007_s10640-016-0024-4 is not listed on IDEAS
    10. 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.
    11. 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.).
    12. 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.

    More about this item

    Keywords

    Misleading Advertising; Regulation; Duopoly; Product Differentiation; Advertising Externality;

    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

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