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Horizontal Product Differentiation: Disclosure and Competition

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    Abstract

    The unraveling argument says that when a rm may produce di erent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally di erentiated. This paper argues that with horizontally di erentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.

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    File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie1205.pdf
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    Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 1205.

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    Date of creation: Jul 2012
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    Handle: RePEc:vie:viennp:1205

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    Web page: http://www.univie.ac.at/vwl

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    1. Simon P. ANDERSON & Régis RENAULT, 2008. "Comparative Advertising: disclosing horizontal match information," THEMA Working Papers 2008-29, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    2. Maarten C.W. Janssen & Santanu Roy, 2007. "Signaling Quality Through Prices in an Oligopoly," Departmental Working Papers 0709, Southern Methodist University, Department of Economics, revised Nov 2008.
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