FOR IMMEDIATE RELEASE:  June 6, 1988

 COMPANIES THE FTC CHARGES WITH FALSE AND MISLEADING ADVERTISING
  SUFFER STOCK MARKET LOSSES, BUREAU OF ECONOMICS STAFF STUDY
FINDS


     Companies the Federal Trade Commission charges with false
and deceptive advertising generally experience significant losses
in their stock market values, according to a Bureau of Economics
staff study the Federal Trade Commission released today.
     The study examined the effects of advertising cases brought
by the FTC and other parties by examining changes in their stock
market values during the progress of a case.
     According to the authors, FTC economist Alan Mathios and
University of Washington economist Mark Plummer, even though the
FTC does not impose fines in most of these cases, FTC actions
often lead to a reduction in the stock market value of these
firms.  Based on these results, the authors concluded that the
FTC has significant power to deter false and deceptive
advertising practices, benefiting consumers and imposing
financial losses on firms.  Firms that lose litigated FTC
advertising cases incur losses on average of five percent of
their stock market value, the study found.
     Dr. David Scheffman, Director of the FTC's Bureau of
Economics, noted, "Many of the firms surveyed for this study have
a market value of $500 million or more.  The stock market value
of those firms that litigated FTC advertising charges and lost
could decrease by $20 million."
     The staff study also found that the longer the FTC
proceeding, the larger the financial effect on the defendant.
Even if the Commission eventually dismisses the charges of false
and deceptive advertising practices against a firm, the study
concluded, the firm bears a significant financial penalty through
reduced stock market value.
     The authors concluded that the study's results emphasize the
importance of case selection in evaluating the costs and benefits
of FTC advertising regulation (p.39)  Thus, according to the
authors, great care should be exercised in case selection and the
application of appropriate legal standards to avoid chilling
advertising that provides useful information to consumers. (p39)
     The study examined three institutions that regulate
advertising:  the FTC; an industry self-regulatory group called
the National Advertising Division of the Council of Better
Business Bureaus and its appeals board, the National Advertising
Review Board; and private litigation under the Lanham Act, which
allows businesses to sue one another for false advertising.
     The study represents the views of the authors and not
necessarily those of the Commission itself or any individual
Commissioner.  Dr. Plummer was with the FTC when the study was
written.

                             (More)
     Copies of the study, titled "Regulation of Advertising:
Capital Market Effects," are available from the FTC's Public
Reference Branch, Room 130, 6th St. and Pennsylvania Ave. N.W.,
Washington, D.C. 20580; 202-326-2222; TTY 202-326-2502.

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MEDIA CONTACT:  Dee Ellison, Office of Public Affairs, 202-326-
                2177

STAFF CONTACT:  David T. Scheffman, Bureau of Economics, 202-326-
                3495
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