*I am grateful to Liam Brunt, Meg Gleason, Meg Meyer, Norton Starr, Lucy White, Geoffrey Woglom, and Lixin Ye, as well as seminar audiences at Amherst College, Clemson University, UC Irvine, McGill University, University of Notre Dame, Ohio State University and University of Pittsburgh for helpful comments. Thanks are also due to the Editor and two anonymous referees, whose thoughtful comments led to substantial improvements in the content and exposition of this paper.
COMPETITION AND DISCLOSURE*
Version of Record online: 20 FEB 2009
© 2009 The Authors. Journal compilation © 2009 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 57, Issue 1, pages 197–213, March 2009
How to Cite
BOARD, O. (2009), COMPETITION AND DISCLOSURE. The Journal of Industrial Economics, 57: 197–213. doi: 10.1111/j.1467-6451.2009.00369.x
- Issue online: 20 FEB 2009
- Version of Record online: 20 FEB 2009
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.