Maarten JANSSEN: Regulating Product Communication

Опубликовано 2 августа 2019, 15:14

Maarten JANSSEN

University of Vienna, Austria

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 (such as advertising or labelling) and where quality claims communicated directly may be deliberately false. A higher fine for lying reduces the reliance on price signalling, thereby lowering market power and consumption distortions; however, it may create competitive incentives for excessive disclosure.

Low fines are always worse than no fines. High fines are welfare improving only if (truthful) disclosure itself is rather inexpensive. Generally, high and low-quality firms may both be worse off under fines on false claims.

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