False Advertising

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

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Misleading Advertising; Product Quality; Pass-through; Self-Regulation
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L15 - Information and Product Quality ; Standardization and Compatibility; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M37 - Advertising

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