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Misleading Advertising in Duopoly

  • Keisuke Hattori

    ()

    (Faculty of Economics, Osaka University of Economics)

  • Keisaku Higashida

    ()

    (School of Economics, Kwansei Gakuin University)

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.

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File URL: http://192.218.163.163/RePEc/pdf/kgdp69.pdf
File Function: First version, 2011
Download Restriction: no

Paper provided by School of Economics, Kwansei Gakuin University in its series Discussion Paper Series with number 69.

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Length: 20 pages
Date of creation: Mar 2011
Date of revision: Mar 2011
Handle: RePEc:kgu:wpaper:69
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