How limiting deceptive practices harms consumers

Salvatore Piccolo (), Piero Tedeschi and Giovanni Ursino

RAND Journal of Economics, 2015, vol. 46, issue 3, 611-624

Abstract: type="main">

There are two competing sellers of an experience good, one offers high quality, one low. The low-quality seller can engage in deceptive advertising, potentially fooling a buyer into thinking the product is better than it is. Although deceptive advertising might seem to harm the buyer, we show that he could be better off when the low-quality seller can engage in deceptive advertising than not. We characterize the optimal deterrence rule that a regulatory agency seeking to punish deceptive practices should adopt. We show that greater protection against deceptive practices does not necessarily improve the buyer welfare.

Date: 2015
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