Regulating Product Communication

Maarten C. W. Janssen and Santanu Roy

American Economic Journal: Microeconomics, 2022, vol. 14, issue 1, 245-83

Abstract: Information regulation that penalizes deceptive communication by firms can have significant unintended consequences. We consider a market where competing firms communicate private information about product quality through a combination of pricing and direct communication (advertising or labeling) that may be false. A higher fine for lying reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it may lead to excessive disclosure. Low fines are always worse than no fines. High fines are welfare improving only if communication itself is inexpensive. Penalizing false claims may reduce profits of both high- and low-quality firms.

JEL-codes: D21 D83 L25 M37 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1257/mic.20190187

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