False Advertising

Rhodes, Andrew and Wilson, Chris (2018) False Advertising. The RAND Journal of Economics, 49 (n° 2). pp. 348-369.

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Official URL: http://tse-fr.eu/pub/32714


There is widespread evidence that some firms use false advertising to overstate the value of their products. We consider a model in which a policy maker can 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.

Item Type: Article
Language: English
Date: 2018
Refereed: Yes
Uncontrolled Keywords: Misleading Advertising, Product Quality, Pass-through, Self-Regulation
JEL codes: D83 - Search; Learning; Information and Knowledge; Communication; Belief
L15 - Information and Product Quality; Standardization and Compatibility
M37 - Advertising
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 08 Jun 2018 08:00
Last Modified: 24 Jul 2019 11:37
OAI ID: oai:tse-fr.eu:32714
URI: http://publications.ut-capitole.fr/id/eprint/26079

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