Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers
AbstractWe examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers’ multi-dimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.
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Date of creation: Jan 2006
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Other versions of this item:
- V. Joseph Hotz & Mo Xiao, 2013. "Strategic Information Disclosure: The Case Of Multiattribute Products With Heterogeneous Consumers," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 865-881, 01.
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L5 - Industrial Organization - - Regulation and Industrial Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-COM-2006-01-24 (Industrial Competition)
- NEP-MIC-2006-01-24 (Microeconomics)
- NEP-MKT-2006-01-24 (Marketing)
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