Why Wonder Bread Lost No Dough: Materiality, Settlements and the Ftc's Ad Substantiation Program

30 Pages Posted: 6 Aug 2003  

Date Written: May 2003

Abstract

Previous studies (e.g., by Sam Peltzman) demonstrate the powerful share-value effects of Federal Trade Commission (FTC) actions against firms whose advertising the FTC claims violate the law. Curiously, however, when the FTC announces an investigation but simultaneous settlement of the case with the advertiser, no adverse impact results, an empirical finding thus far unexplained. This article uses a recent FTC action, in which the accused advertiser suffered no adverse equity impact, to explain that result. Many advertising messages challenged by the FTC are not material to consumers. If not - and especially when, as in the case discussed here, the advertiser had much earlier discontinued the advertising challenged - the advertiser predictably would not suffer. Econometric evidence supports the findings of no adverse impact, and of lack of materiality in the messages the FTC challenged.

Suggested Citation

Higgins, Richard S. and McChesney, Fred S., Why Wonder Bread Lost No Dough: Materiality, Settlements and the Ftc's Ad Substantiation Program (May 2003). Northwestern Law & Econ Research Paper No. 03-13. Available at SSRN: https://ssrn.com/abstract=428643 or http://dx.doi.org/10.2139/ssrn.428643

Richard S. Higgins

Law and Economics Consulting Group (LECG) ( email )

1725 Eye Street, NW
Suite 800
Washington, DC 20006
United States

Fred S. McChesney (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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