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Misleading Advertising and Minimum Quality Standards

Author

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  • Keisuke Hattori

    (Faculty of Economics, Osaka University of Economics)

  • Keisaku Higashida

    (School of Economics, Kwansei Gakuin University)

Abstract

This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards and certi cation criteria, when products are vertically di erentiated in their health/safety aspects. We investigate the welfare e ect of regulating misinformation and strengthening MQSs. We nd that when the amount of misinformation on both low- and high-quality products is small, regulating misinformation on low-quality products reduces welfare, although the strictness of an MQS influences its e ect. On the other hand, regulating misinformation on high-quality products always improves welfare. We also nd that a stricter MQS can harm welfare. This, in particular, is likely to occur when the di erence between the perceived quality of the two types of products is large and when rms generate high degrees of misperceptions. Moreover, we extend the analysis by endogenizing quality investments and demonstrate that regulating misinformation on high-quality products may deteriorate their true quality and, thus, reduce welfare.

Suggested Citation

  • Keisuke Hattori & Keisaku Higashida, 2011. "Misleading Advertising and Minimum Quality Standards," Discussion Paper Series 74, School of Economics, Kwansei Gakuin University, revised Aug 2011.
  • Handle: RePEc:kgu:wpaper:74
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    Cited by:

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    3. 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.
    4. 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.
    5. Fotios Pasiouras, 2018. "Financial Consumer Protection and the Cost of Financial Intermediation: Evidence from Advanced and Developing Economies," Management Science, INFORMS, vol. 64(2), pages 902-924, February.
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    7. 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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    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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