Meta-analysis of studies examining more than 66,000 U.S. advertisements indicates that advertisements contained significantly fewer objective information claims during a period of strict advertisin...

FTC Regulatory Activity and the Information Content of Advertising

We survey the pioneering contributions of Robert Tollison to the theory and practice of antitrust law enforcement. Inspired by his period of service during Ronald Reagan’s first administration as Director of the Federal Trade Commission’s Bureau of Economics, Tollison was the first scholar to apply public choice reasoning to the question why antitrust frequently fails to achieve its stated goal of protecting consumers against unwarranted exercises of market power. In supplying evidence that the outcomes of antitrust processes are shaped more by special interests than by the public’s interest, he was instrumental in launching a wholly new research program.

Public Choice Theory and Antitrust Policy

There are three major policy implications from the analysis of advertising regulation: advertising of truthful information should not be restricted by regulatory authorities; deception is most likely and most harmful in the case of ‘credence’ goods, and regulation is most useful (if it is useful at all) in the case of these goods; and laws or rules mandating disclosure (as opposed to laws banning explicit deception) are generally not needed, and often counterproductive. These points are applied in particular to regulation of price advertising, of health claims, and of advertising by attorneys. An important point of the analysis is that advertising can help markets move to new equilibria, and excess regulation can retard such movements, with consequent losses in consumer welfare. The role of the FTC is stressed throughout since this agency uses economic analysis in its regulation of advertising. JEL classification: D83, K29, M37

Information regulation (including regulation of advertising)

I, Introduction The field of antitrust and industrial economics is one of the last bastions of the economics profession to be untouched by the public choice revolution. Economic analysis in this areaproceeds in roughly the following way. First, the efficiency of market arrangements and organizations is analyzed. Second, those markets found wanting on the efficiency scorecard are assigned to government, through an antitrust case, to correct. The first step in this process is unobjectionable and represents one of the richest applied parts ofmodern economics. The second part is weak because it rests on a public interest theory of government. A market failure (monopoly) is found in the private sector, and government (an unexamined alternative) is invoked to correct it. Judges and antitrust bureaucrats are assumed tooperate in the public interest, which in this case means the promotion of economic efficiency in the economy. This is not a very useful way to approach antitrust (or any other) economic analysis. As a positive theory, it is wrong. As many critics have shown, the historical record of antitrust decisions will not support the public interest theory. If we are to understand the course of antitrust better, the behavior of the relevant actors must be made endogenous to our explanation of antitrust outcomes. As a normative basis for criticizing antitrust, the public interest approach is not very helpful. When all is said and done and government is not following one’s conception of the public interest in antitrust, we are reduced to such tried and true nonsense as “better people make better government.” Change the decision makers and the policy will change. This sounds good but it never seems to work. Government cranks

Fred S. McChesney

Papers

Truth and consequences: The Federal Trade Commission's ad substantiation program

Law's Honour Lost: The Plight of Antitrust