Abstract
There is widespread evidence that some firms use false advertising to overstate the value of their products. Using a model in which a policymaker is able to punish such false claims, we characterize a natural equilibrium in which false advertising actively influences rational buyers. We analyze the effects of policy under different welfare objectives and establish a set of demand and parameter conditions where policy optimally permits a positive level of false advertising. Further analysis considers some wider issues including the implications for product investment and industry self-regulation.
Keywords
Misleading Advertising; Product Quality; Pass-through; Self-Regulation;
JEL codes
- D83: Search • Learning • Information and Knowledge • Communication • Belief
- L15: Information and Product Quality • Standardization and Compatibility
- M37: Advertising
Replaced by
Andrew Rhodes, and Chris Wilson, “False Advertising”, The RAND Journal of Economics, vol. 49, n. 2, Summer 2018, pp. 348–369.
Reference
Andrew Rhodes, and Chris Wilson, “False Advertising”, TSE Working Paper, n. 15-614, December 2015, revised October 2017.
See also
Published in
TSE Working Paper, n. 15-614, December 2015, revised October 2017