Deceptive advertising is the behavior that the operators make use of the advertisements to fabricate the facts and cause the consumers’ misunderstanding of their goods or services so as to gain benefits. In this paper, the governments and consumers are taken into account. From the perspective of companies, the main target is to maximize the profits. In that case, we discuss the impact of government supervision, consumer negative word-of-mouth, product cost and other factors on company advertising decision-making. A two-period model is established to analyze the optimal propaganda and maximum profits of the four possible advertising strategies, e.g., the company doesn’t make deceptive advertisements, makes deceptive advertisements in the first period, makes deceptive advertisements in the second period, and makes deceptive advertisements in both periods. In this paper, we investigate the two-period model and find which one strategy is more profitable for the company and the optimal advertising levels. We find that the company will make deceptive advertising when the difference in cost between high-quality and low-quality products is large, the government supervision is loose, and negative word-of- mouth effect is small. Based on different market environment and product characteristics, we derive some useful advertising advices for the company, and also give management insights to consumers and government regulatory authorities.
Wang, Tian and Dong, Li, "Deceptive Advertising Strategies in a Two-period Model" (2020). WHICEB 2020 Proceedings. 21.