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How limiting deceptive practices harms consumers
Author(s) -
Piccolo Salvatore,
Tedeschi Piero,
Ursino Giovanni
Publication year - 2015
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12099
Subject(s) - harm , false advertising , agency (philosophy) , limiting , quality (philosophy) , business , deterrence theory , product (mathematics) , advertising , deterrence (psychology) , evasion (ethics) , deception , consumer welfare , marketing , welfare , microeconomics , economics , law and economics , psychology , social psychology , political science , law , philosophy , mathematics , immune system , engineering , biology , geometry , epistemology , market economy , immunology , mechanical engineering
There are two competing sellers of an experience good, one offers 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.