Consumers suffer when they don't get the information that advertising provides, Calfee says. Calfee acknowledges that advertising attempts to persuade. But consumers don't trust it. Therein lies its value, he says. The dynamics among competing advertisers and between advertisers and consumers tend to keep false advertising in check.
Regulation tends to reduce competition and consumer choice.
The New Economics of Advertising and Competition Advertising restrictions have historically been based on fear of persuasion. But three decades of research have transformed scholarly thinking. Once seen as a fountain of misinformation and a tool for shaping the desires of compliant consumers, advertising is now understood to be a tool for consumers to use for their own purposes, something to be welcomed rather than feared. Markets as diverse as pharmaceuticals, foods, and cigarettes have demonstrated immense benefits to consumers from purely self-interested advertising. Even young children and their parents benefit by getting better products at lower prices.