How Limiting Deceptive Practices Harms Consumers

Salvatore Piccolo (), Piero Tedeschi () and Giovanni Ursino
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Salvatore Piccolo: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore
Piero Tedeschi: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore

No def023, DISCE - Working Papers del Dipartimento di Economia e Finanza from Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE)

Abstract: There are two competing sellers of an experience good, one o ers 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.

Keywords: Misleading Advertising; Deception; Bayesian Consumers; Asymmetric Information (search for similar items in EconPapers)
JEL-codes: L13 L15 L4 (search for similar items in EconPapers)
Pages: 21
Date: 2015-05
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

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