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Chinese Journal of Management Science ›› 2021, Vol. 29 ›› Issue (4): 179-191.doi: 10.16381/j.cnki.issn1003-207x.2019.1732

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Government Supervision Strategies Aimed at Company Deceptive Advertising

WANG Tian, DONG Li   

  1. School of Business Administration, Zhongnan University of Economics and Law, Wuhan 430073, China
  • Received:2019-10-31 Revised:2020-07-14 Published:2021-04-25

Abstract: Deceptive advertising is essentially a mismatch between publicity effect and product quality. Companies provide low-quality products and mislead consumers in the form of deceptive advertising. For example, the use of advertising fictitious facts causes consumers to misunderstand their products or services, thereby obtaining greater profits than normal advertising. The research questions in this article are: (1) What factors will affect the advertising efforts and earnings of companies? In what market environment will companies choose to provide low-quality products and conduct deceptive advertising?(2) What is the company's optimal choice among different strategies? How does this choice change as the market environment changes?(3) Based on the company's choice, how to advise the government to limit deceptive advertising and purify the market environment? This article considers the advertising decision of a single company in an oligopoly market. In order to study the negative effects of deceptive advertising, this paper constructs a two-period model to study four situations: (1) No deceptive advertising (HH) (comparison group); (2) Deceptive advertising only in the second period (HL); (3) Deceptive advertising only in the first period (LH); and (4) Deceptive advertising was carried out in two periods (LL). It is assumed that companies provide high-quality and low-quality products. Companies will conduct normal advertising when selling high-quality products, and will correspondingly conduct deceptive advertising when selling low-quality products. Firstly, the optimal decisions are analyzed in each case and then the profits are compared among these four cases. Secondly, based on the comparison, this paper explores the company's optimal choices in advertising are explored. Finally, the government's strategies to limit deceptive advertising are analyzed. Based on the analysis of company profits, it is believed that the government should restrict deceptive advertising from three aspects. First, it is fundamental to reduce the profit margins for companies to provide low-quality products. Second, strengthen market supervision from the perspectives of increasing the cost of punishment and the probability of being discovered. Third, cultivate the awareness of rights protection in the market and improve the negative word-of-mouth effect at the consumer level.Through detailed numerical analysis, company profits and specific government supervision strategies in different market environments are explored. Finally, countermeasures and suggestions are put forward to limit the deceptive advertising, improve consumer benefits and purify the market environment.

Key words: deceptive advertising, product quality, supervision strategy, two-period decision-making model

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