Regulating product communication

Maarten Janssen, Santanu Roy

Publications: Contribution to journalArticlePeer Reviewed

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.

Original languageEnglish
Pages (from-to)245-283
Number of pages39
JournalAmerican Economic Journal: Microeconomics
Volume14
Issue number1
DOIs
Publication statusPublished - Feb 2022

Austrian Fields of Science 2012

  • 502013 Industrial economics
  • 502021 Microeconomics

Keywords

  • COMPETITION
  • DISCLOSURE
  • MODEL
  • PERCEPTIONS
  • PRICE
  • QUALITY

Cite this