American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Regulating Product Communication
American Economic Journal: Microeconomics
vol. 14,
no. 1, February 2022
(pp. 245–83)
Abstract
Information regulation that penalizes deceptive communication by firms can have significant unintended consequences. We consider a market where competing firms communicate private information about product quality through a combination of pricing and direct communication (advertising or labeling) that may be false. A higher fine for lying reduces the reliance on price signaling, thereby lowering market power and consumption distortions; however, it may lead to excessive disclosure. Low fines are always worse than no fines. High fines are welfare improving only if communication itself is inexpensive. Penalizing false claims may reduce profits of both high- and low-quality firms.Citation
Janssen, Maarten C. W., and Santanu Roy. 2022. "Regulating Product Communication." American Economic Journal: Microeconomics, 14 (1): 245–83. DOI: 10.1257/mic.20190187Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- L25 Firm Performance: Size, Diversification, and Scope
- M37 Advertising
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