Andrew Rhodes () and
EconStor Preprints from ZBW - Leibniz Information Centre for Economics
There is widespread evidence that some firms use false advertising to overstate the value of their products. We consider a model in which a policymaker is able to punish such false claims. We characterize an equilibrium where false advertising actively influences rational buyers, and analyze the effects of policy under different welfare objectives. We establish precise conditions where policy optimally permits a positive level of false advertising, and show how these conditions vary intuitively with demand and market parameters. We also consider the implications for product investment and industry self-regulation, and connect our results to the literature on demand curvature.
Keywords: Misleading Advertising; Product Quality; Pass-through; Self-Regulation (search for similar items in EconPapers)
JEL-codes: M37 L15 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Journal Article: False advertising (2018)
Working Paper: False Advertising (2017)
Working Paper: False Advertising (2016)
Working Paper: False Advertising (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:128476
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