Munich Personal RePEc Archive

False Advertising

Rhodes, Andrew and Wilson, Chris M (2015): False Advertising.

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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.

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