uced high quality products to advertise. The table below- taken from Carlton and Perloff textbook 2nd edition -indicates spending in advertising of tobacco.RankU.S advertising in 1990($ thousands)Advertising as a Percentof U.S sales American Brands 49277,0844.8Philip Morris22,210,2336.1Philip Morris as well as American Brands, are major tobacco companies. As we can from the table, Philip Morris spent a very large amount for advertising, equal to 6.1% of its U.S sales. As I noted above, advertising can improve consumers information the quality of several products. Consumers have the opportunity to collect information through any form of advertising in order to purchase only high quality goods. But is advertising always truthful and informative? The answer to this question is no. Advertising may sometimes be false and uninformative. Of course false advertising is illegal but firms can advertise in a false or a misleading manner for years. In order to stop this we can properly use Antifraud laws. Lets take an example to understand better what Antifraud laws are. Suppose that the law prohibits the misleading of the fabric content of clothing. If the law is always enforced, consumers believe that a clothing label is usually correct, thereby giving a manufacture an incentive to mislead. On the contrary, in the absence of any enforcement consumers do not trust clothing labels and as a result firms have little incentive to mislead. (Statement taken from Carlton and Perloff)The question that may arise here is if we have to enforce these laws or not. It is not so simple to answer this question. As I noted above we have to use Antifraud laws properly if we want to increase consumers information. This means that the optimal level of enforcement lies somewhere in the middle range between no enforcement at all and enforcement of those laws.Furthermore we can use Disclosure laws in order to stop misleading advertising. This set of laws require firms ...
