Abstract
Providing truthful and unbiased information about the true value of a good to a priori heterogeneous consumers generates a mean-preserving counterclockwise rotation of demand. The welfare analysis of such rotation in monopoly and perfectly competitive models indicates that consumers can lose surplus if they become better informed.
Notes
1 Consumers may need to actually see test results certified by some agency to allay suspicions of self-serving advertising, but may be willing to accept that CR is honest.
2 Competitive markets are often depicted as having upwards sloping supply functions, while monopoly is often characterized by a constant marginal cost with a fixed cost. This distinction is important here, as PS is in the form of rents in the competitive case.
3 The cost of better information provision may be paid for by the government based on taxes on producers in this industry, all producers, or consumers generally.