Working paper

False Advertising

Andrew Rhodes, and Chris Wilson

Abstract

There is widespread evidence that some firms use false advertising to overstate the value of their products. Using a model in which a policymaker is able to punish such false claims, we characterize a natural equilibrium in which false advertising actively influences rational buyers. We analyze the effects of policy under different welfare objectives and establish a set of demand and parameter conditions where policy optimally permits a positive level of false advertising. Further analysis considers some wider issues including the implications for product investment and industry self-regulation.

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

Replaced by

Andrew Rhodes, and Chris Wilson, False Advertising, The RAND Journal of Economics, vol. 49, n. 2, Summer 2018, pp. 348–369.

Reference

Andrew Rhodes, and Chris Wilson, False Advertising, TSE Working Paper, n. 15-614, December 2015, revised October 2017.

See also

Published in

TSE Working Paper, n. 15-614, December 2015, revised October 2017