The author's study suggests that competition can lead to low-quality advertisers competing against and gaining market shares from lower-priced, high-quality non-advertisers. Evidence in support of this market outcome comes from optometry, a service that has experienced advertising deregulation over the past two decades. The author discusses various explanations of this outcome, including the possibility that self-deceiving consumers relying on “illusory qualities” believe they can judge product quality as measured by the firm, though they cannot. Thus, those consumers are ultimately satisfied with low-quality products at high prices—“sweet lemons.”
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