Demand for 'Healthy' Products: False Claims and FTC Regulation

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-019

54 Pages Posted: 18 Mar 2015 Last revised: 2 Apr 2017

See all articles by Anita Rao

Anita Rao

University of Chicago - Booth School of Business

Emily Yucai Wang

University of Massachusetts, Amherst

Date Written: March 10, 2017

Abstract

Firms sometimes make selective or deceptive claims. Such claims can have negative consequences for consumers, especially if consumers are not fully informed and the claims are hard to verify. This paper aims to measure the decline in demand that a firm making such claims faces when caught. In addition, it seeks to understand which type of consumer these claims primarily affect. Using a panel dataset of consumer purchases and firm advertising, we exploit the fact that four popular products settled charges raised by the Federal Trade Commission, to measure this impact. We further control for and document firm responses in terms of price and advertisement changes around the date of the settlement. Our findings indicate a significant decline in demand following the termination of the claims, resulting in a 12%-67% monthly loss in revenue across the four products, which amounts to a $0.40m-$3.82m loss in monthly revenue. We further find these claims primarily affect consumers who are newcomers.

Suggested Citation

Rao, Anita and Wang, Emily Yucai, Demand for 'Healthy' Products: False Claims and FTC Regulation (March 10, 2017). Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 1-019. Available at SSRN: https://ssrn.com/abstract=2559980 or http://dx.doi.org/10.2139/ssrn.2559980

Anita Rao (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Emily Yucai Wang

University of Massachusetts, Amherst ( email )

80 Campus Center Way
University of Massachusetts, Amherst
Amherst, MA 01003
United States
4135455741 (Phone)

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