Review of law sciences

II. Universal Theoretical View on Competition Models and Regulatory Standards of
Misleading Advertising 
The initial theories of competition law had controversial debates on the issue whether an 
advertising is pro-competitive or anti-competitive. There are two main approaches in this issue: 
traditional and efficiency. According to the Traditional Approach, the advertising is pro-
competitive because it reduces product`s search cost and mitigates consumers` uncertainty about 
alternatives as well as facilitates choice [17]. On the contrary, the Efficiency Approach considers 
the advertising based on its influence on competition, so it might be pro-competitive or anti-
competitive [18]. 
However, initial theories could not articulate how to detect misleading advertising. Philip 
Nelson (1970) substantiated the ways of distinction of truthfulness from falsity in advertising 
according to the product characteristics [19]. He suggested to divide goods into two categories: 
"search goods" (e.g. information on comfortability of a pair of shoes can be checked in pre-sale 
inspection) and "experience goods" (e.g. information on the taste of a candy might be evaluated 
after purchase). Darby and Karni (1973) upgraded the theory by adding to it "credence goods" 
[20]. In credence goods cases, consumer relies on the seller`s reputation, e.g. how can non-expert 
(typical) consumer evaluate the health benefits of vitamin supplements. 

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Review of law sciences
(2020) 130-139 
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The next theories concentrated on the issue of on how misleading advertising should be 
regulated. The theoretical Model of Perfect Competition assumed that market itself is an 
equilibrium and the information in the market does not need some regulation [21]. However, this 
non-interventionist and non-regulatory model is unrealistic and utopia [22]. Conversely, the 
Austrian Economic Model on Competition (Israel Kirzner, 1976) stated that misleading 
advertising needs some coordination, which should be based on understanding of both advertising 
and competition, because a consumer and a producer are in state of search and uncertainty in the 
market [23]. 
However, above mentioned competition theories could not answer to the question of who 
should regulate misleading advertising. Ellen Jordan and Paul Rubin (1979) found that misleading 
advertising should not be controlled by competitors because they can use private policy as a 
weapon against new entrants [24]. Petty (1992) supported the idea of government regulation 
referring to the advertising self-regulation as a cause anti-competitive collusion [25]. 
Since the government can intervene to the competitors` speeches and control the flow of 
commercial information, the next theories focuse on how to keep balance competing interests of 
competitors and consumers. Ross Petty (1992), in his theory "a market free of false advertising", 
suggested that the remedies for misleading advertising should not exclude a competitor from the 
market [26]. "Equilibrium Model of False Advertising" (Andrew Rhodes and Chris Wilson, 2016) 
suggested the moderate penalty for misleading advertising because high level of penalty can reduce 
commercial information and limits consumer access or vice versa low level of penalty can decline 
the credibility of advertising, which has a negative impact on product quality and innovative 
competition between sellers [27].
The above-mentioned theories could not clearly answer to the question of in what extent 
government should regulate misleading advertising or intervene to the free speech rights of sellers. 
Commercial speech doctrine focuses on the issue of on how to protect commercial speech from 
government intervention and how to limit government power of regulation [28]. Since false and 
misleading advertising is considered to be unprotected commercial speech under the First 
Amendment of US Constitution, the US government has rationale for intervention to false 
advertising. However, the intervention must be reasonable [29], which means that the regulation 
should not be more restrictive than necessary [30] and the government cannot control the 
advertising by curbing consumer access to information [31]. On basis of this reasonable fit, the 
US Supreme Court, in its "An Integrated Model of Restriction of Commercial Speech", proved 
ineffectiveness of the strict scrutiny by total banning of misleading advertising. The majority of 
judges supported the application of the "less than strict alternatives" which consists of "content-
based" regulation and "method (non-content) based regulation [32]. However, content-based 
regulation needed some standards for identification and evaluation of misleading advertising. The 
legal standards can be conventionally divided into product-related standards [33] and consumer-
oriented standards [34]. 
The standards have been implemented to the practice through two common models, which 
are used as a framework for designing competition law and policy by majority countries. They are 
Traditional and Modern Competition Law Models. The traditional competition law model, as a 
business-oriented model, evaluates misleading advertising as a corporate behaviour, which can 
harm the business (other competitors). Therefore, the model addresses to strict control only 
outgoing flow of advertising by government regulation [35]. Nevertherless, the modern 
competition law model evaluates an impact of misleading advertising on competition process, 

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