Misleading Advertising and Minimum Quality StandardsKwansei Gakuin University Discussion Paper Series (2011)
AbstractThis paper examines the relationship between misinformation about product quality and quality standards, such as minimum quality standards and certication criteria, when products are vertically differentiated in their health/safety aspects. We investigate the welfare effect of regulating misinformation and strengthening MQSs. We find 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 effect. On the other hand, regulating misinformation on high-quality products always improves welfare. We also find that a stricter MQS can harm welfare. This, in particular, is likely to occur when the difference between the perceived quality of the two types of products is large and when firms 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.
- Minimum quality standards,
- Vertical differentiation.
Publication DateAugust, 2011
Citation InformationKeisuke Hattori and Keisaku Higashida. "Misleading Advertising and Minimum Quality Standards" Kwansei Gakuin University Discussion Paper Series (2011)
Available at: http://works.bepress.com/hattori/11/