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COMPETITION AND DISCLOSURE

COMPETITION AND DISCLOSURE There are many laws that require sellers to disclose private information about the quality of their products. But the theoretical justification for these laws is not obvious: economic theory predicts that a seller will voluntarily disclose such quality information, however unfavorable, as long as it is costless to do so. Here we show that competitive pressures between firms can undermine this full disclosure result, and explain why it may be the case that only high‐quality firms choose to disclose. In this setting, mandatory disclosure laws can promote competition and raise consumer surplus at the expense of firm profits, potentially increasing the efficiency of the market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Industrial Economics Wiley

COMPETITION AND DISCLOSURE

The Journal of Industrial Economics , Volume 57 (1) – Mar 1, 2009

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References (31)

Publisher
Wiley
Copyright
© 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
ISSN
0022-1821
eISSN
1467-6451
DOI
10.1111/j.1467-6451.2009.00369.x
Publisher site
See Article on Publisher Site

Abstract

There are many laws that require sellers to disclose private information about the quality of their products. But the theoretical justification for these laws is not obvious: economic theory predicts that a seller will voluntarily disclose such quality information, however unfavorable, as long as it is costless to do so. Here we show that competitive pressures between firms can undermine this full disclosure result, and explain why it may be the case that only high‐quality firms choose to disclose. In this setting, mandatory disclosure laws can promote competition and raise consumer surplus at the expense of firm profits, potentially increasing the efficiency of the market.

Journal

The Journal of Industrial EconomicsWiley

Published: Mar 1, 2009

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