Misleading Advertising and Minimum Quality Standards

Keisuke Hattori and Keisaku Higashida

No 74, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards and certi cation criteria, when products are vertically di erentiated in their health/safety aspects. We investigate the welfare e ect of regulating misinformation and strengthening MQSs. We nd that when the amount of misinformation on both low- and high-quality products is small, regulating misinformation on low-quality products reduces welfare, although the strictness of an MQS influences its e ect. On the other hand, regulating misinformation on high-quality products always improves welfare. We also nd that a stricter MQS can harm welfare. This, in particular, is likely to occur when the di erence between the perceived quality of the two types of products is large and when rms generate high degrees of misperceptions. Moreover, we extend the analysis by endogenizing quality investments and demonstrate that regulating misinformation on high-quality products may deteriorate their true quality and, thus, reduce welfare.

Keywords: Advertising; Minimum quality standards; Misinformation; Vertical differentiation (search for similar items in EconPapers)
JEL-codes: L13 L15 M37 Q58 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2011-08, Revised 2011-08
New Economics Papers: this item is included in nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://192.218.163.163/RePEc/pdf/kgdp74.pdf First version, 2011 (application/pdf)

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Journal Article: Misleading advertising and minimum quality standards (2014)
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