Accessible Unlicensed Requires Authentication Published by De Gruyter October 25, 2016

Consumers’ Misevaluation and Public Promotion

Atsushi Yamagishi ORCID logo


I analyze markets in which consumers may misestimate the true value of goods and the government can affect the valuation through public promotion. When entry of firms is not allowed, the government makes consumers overvalue the goods to mitigate welfare loss from underproduction in an oligopolistic market, provided that the promotion cost is sufficiently low. On the contrary, in a free-entry market, no matter how low the promotion cost is, the government may make consumers undervalue them in order not to induce wasteful entries despite the remaining underproduction problem. In addition, my result in a free-entry market suggests that the main finding of Glaeser and Ujhelyi (J Public Econ 94: 247-257, 2010)crucially depends on the barriers to entry and the opposite result may be obtained under free entry.

JEL Classification: L13; L38; M37


I would like to thank Toshihiro Matsumura and all seminar participants at The University of Tokyo. I am also indebted to an anonymous referee and the editor-in-chief, Sandra Ludwig, for their helpful comments and suggestions. Needless to say, I am responsible for any remaining errors.


Proof of Proposition 1

By applying the implicit function theorem to eq. [3], I have







Now I prove Proposition 1(ii). When C(g)<(>,=)(a+g)nb(n+1)2, LHS <(>,=) RHS in eq. [3] at z=g. Remember that z always exists and is unique. z>(<,0)g follows because, in eq. [3], LHS <(>,=) RHS at z=g, the LHS is strictly increasing in z, and the RHS is independent of z. Q.E.D.

Proof of Proposition 2

Note that z is always well defined and determined uniquely. When g>(<,=)0, C(g)>(<,=)0. Since LHS >(<,=) RHS at z=g in eq. [6], the LHS of eq. [6] is strictly increasing, and the RHS of eq. [6] does not depend on z, z<(>,=)g holds. Q.E.D.


Glaeser E. L., Ujhelyi G. 2010. “Regulating Misinformation.” Journal of Public Economics 94:247–257. Search in Google Scholar

Hattori K., Higashida K. When Government Misleads US: Sending Misinformation as Protectionist Devices. Kwansai Gakuin University Discussion Paper Series 75 2011. Search in Google Scholar

Hattori K., Higashida K. 2012. “Misleading Advertising in Duopoly.” Canadian Journal of Economics 45:1154–1187. Search in Google Scholar

Hattori K., Higashida K. 2015. “Who Benefits from Misleading Advertising?” Economica 82:613–643. Search in Google Scholar

Mankiw N. G., Whinston M. D. 1986. “Free Entry and Social Inefficiency.” RAND Journal of Economics 17:48–58. Search in Google Scholar

Matsumura T., Sunada T. 2013. “Advertising Competition in a Mixed Oligopoly.” Economics Letters 119:183–185. Search in Google Scholar

Ram S., Sheth J. N. 1989. “Consumer Resistance to Innovations: The Marketing Problem and Its Solutions.” Journal of Consumer Marketing 6 (2):5–14. Search in Google Scholar

Suzumura K., Kiyono K. 1987. “Entry Barriers and Economic Welfare.” Review of Economic Studies 54:157–167. Search in Google Scholar

Tversky A., Kahneman D. 1974. “Judgement under Uncertainty: Heuristics and Biases.” Science 185:1124–1131. Search in Google Scholar

Published Online: 2016-10-25
Published in Print: 2016-10-1

©2016 by De Gruyter