Misleading advertising and minimum quality standards

Keisuke Hattori and Keisaku Higashida

Information Economics and Policy, 2014, vol. 28, issue C, 1-14

Abstract: This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards (MQSs) and certification criteria, when products are vertically differentiated in terms of their health/safety aspects. We investigate the welfare effect of regulating misinformation and strengthening MQSs. We find that the welfare effect of a decrease in misinformation crucially depends on the existing amount of misinformation; moreover, a more stringent MQS either improves or deteriorates welfare. Two effects figure strongly throughout our results. First, changes in misinformation and/or an MQS make price competition between firms more or less serious, causing changes in price and quantity. Second, these changes influence some consumers’ choices, leading them to change the products that they purchase. This change in consumption behavior increases or decreases inappropriate choices when misinformation is present. We extend the analysis to the case in which a high-quality firm’s quality investment is endogenously determined.

Keywords: Advertising; Minimum quality standards; Misinformation; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: L13 L15 M37 Q58 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: Misleading Advertising and Minimum Quality Standards (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:28:y:2014:i:c:p:1-14

DOI: 10.1016/j.infoecopol.2014.04.004

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