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False Advertising

Author

Listed:
  • Rhodes, Andrew
  • Wilson, Chris

Abstract

There is widespread evidence that some firms use false advertising to overstate the value of their products. We consider a model in which a policymaker is able to punish such false claims. We characterize an equilibrium where false advertising actively influences rational buyers, and analyze the effects of policy under different welfare objectives. We establish precise conditions where policy optimally permits a positive level of false advertising, and show how these conditions vary intuitively with demand and market parameters. We also consider the implications for product investment and industry self-regulation, and connect our results to the literature on demand curvature.

Suggested Citation

  • Rhodes, Andrew & Wilson, Chris, 2017. "False Advertising," EconStor Preprints 128476, ZBW - German National Library of Economics.
  • Handle: RePEc:zbw:esprep:128476
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Janssen, Maarten & Roy, Santanu, 2017. "Regulating False Disclosure," CEPR Discussion Papers 12450, C.E.P.R. Discussion Papers.
    2. Salvatore Piccolo & Aldo Pignataro, 2016. "Consumer Loss Aversion, Product Experimentation and Implicit Collusion," CSEF Working Papers 457, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Janssen, Maarten, 2017. "Regulating False Discloure," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168159, Verein für Socialpolitik / German Economic Association.
    4. Simone Ghislandi & Michael Kuhn, 2016. "Asymmetric information in the regulation of the access to markets," Department of Economics Working Papers wuwp219, Vienna University of Economics and Business, Department of Economics.

    More about this item

    Keywords

    Misleading Advertising; Product Quality; Pass-through; Self-Regulation;

    JEL classification:

    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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