Regulating product communication

Author(s)
Maarten Janssen, Santanu Roy
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.

Organisation(s)
Department of Economics
External organisation(s)
Southern Methodist University
Journal
American Economic Journal: Microeconomics
Volume
14
Pages
245-283
No. of pages
39
ISSN
1945-7669
DOI
https://doi.org/10.1257/mic.20190187
Publication date
2020
Peer reviewed
Yes
Austrian Fields of Science 2012
502013 Industrial economics, 502021 Microeconomics
Keywords
ASJC Scopus subject areas
Economics, Econometrics and Finance(all)
Portal url
https://ucris.univie.ac.at/portal/en/publications/regulating-product-communication(dc69785c-76b4-485d-bc8b-689f5b653213).html