Comparative Advertising and Competition Policy
International University in Germany Working Paper No. 19/2004
38 Pages Posted: 5 Apr 2005
Date Written: August 2004
Only recently, competition authorities tend to see comparative advertising as helpful in promoting competition. They now encourage firms to use it. They reason that comparative advertising, if fair and not misleading, increases consumers' information about alternative brands. For this to work, comparative claims must be credible. Competition policy and legal practice are essential in making comparative advertising (directly and indirectly) informative.
In this paper, first we provide a legal background of comparative advertising in Europe and the US. Second, we provide an analysis of some recent legal cases in Europe and the US. Third, we provide an economic analysis of comparative advertising. Here, we discuss the ways comparative advertising can affect market outcomes. In our analysis we put emphasis on the scope of information transmission through comparative advertising and on the way antitrust laws affect it. We uncover two important effects: in the case of search goods, comparative advertising can relax price competition by differentiating products; however, in the case of experience and credence goods, it can intensify competition by signaling the sponsoring brand's quality.
Keywords: advertising ban, advertising, marketing, antitrust, signaling
JEL Classification: L15, L41, M37, L13, K21
Suggested Citation: Suggested Citation