Beschreibung:
We introduce persuasive advertising in a duopoly market of di⁄erentiated harmful goods, where rms compete on prices and advertising. Since advertising arti cially in ates consumers demand, there is over-consumption of sin goods. We rst show how introducing an excise tax increases consumers welfare and reduces rms pro ts. We then show that adding regulation of advertising increases both aggregate consumers welfare and rms pro ts, at the cost of creating a con ict between consumers responding weakly to advertising who experience welfare reductions and consumers highly sensitive to it who experience welfare gains