Economics at the FTC: Mergers, Dominant-Firm Conduct, and Consumer Behavior

Antitrust, Consumer protection, FTC, Mergers, Mandatory disclosures, Appliance labeling,

Economics Research at the FTC: Information, Retrospectives, and Retailing

Individual Federal Trade Commission (FTC) cases invariably raise broad questions about consumers, markets, and effective enforcement policy. Recent consumer protection cases raise questions about information regulation. Horizontal merger enforcement has recently focused on retrospective analysis of mergers and the role of the retail sector in predicting the effects of manufacturer mergers. In this paper, we describe research by the FTC’s Bureau of Economics that addresses these three areas. We argue that such research is well worth the agency’s relatively small resource investment because it demonstrably contributes to more thoughtful policy analysis and better policy outcomes. Copyright Kluwer Academic Publishers 2004consumer protection, FTC, information, marketing, mergers, retailing,

Setting Quality Expectations When Entering a Market: What Should the Promise Be?

This paper examines optimal advertised quality, actual quality, and price for a firm entering a market. It develops a two-period model where advertised quality influences expectations, and hence trial and the gap between actual quality and expectations determines satisfaction, which in turn impacts second-period sales. In such situations a company makes a choice between advertising high quality and getting trial, but little repeat; and advertising low quality and getting low trial, but high repeat. Results are derived by numerical methods, as well as analytically for a special case of the model. The model suggests it is optimal to overstate quality when (i) customers rely relatively less on advertising to form quality expectations, and (ii) customers' intrinsic satisfaction with a product is high. These results are consistent with deceptive advertising cases at the FTC, which showed more deception for unknown firms and for firms whose customers were more satisfied. They are also consistent with the decisions made by future managers (MBAs), except that the respondents would advertise higher (versus lower) quality when advertising was effective.customer satisfaction, customer expectations, deceptive advertising, new products, advertised and actual quality