Comparative Advertising: disclosing horizontal match information

Improved consumer information about horizontal aspects of products of similar quality leads to better consumer matching but also higher prices, so consumer surplus can go up or down, while proÞts rise. With enough quality asymmetry though, the higher quality (and hence larger) Þrm’s price falls with more information, so both effects beneÞt consumers. This is when comparative advertising is used, against a large Þrm by a small one. Comparative advertising, as it imparts more information, therefore helps consumers. While it also improves proÞtability of the small Þrm, overall welfare goes down because of the large loss to the attacked Þrm.