The Effects of Disclosure Regulation of an Innovative Firm
A firm actively manages its rivalâ€™s beliefs by disclosing and concealing information on the size of its process innovation. The firmâ€™s disclosure strategy results from the trade-off between two effects on product market incentives. First, the firmâ€™s competitor learns that the firm is efficient, which discourages the competitor. Second, the competitor becomes more efficient himself, since he can expropriate part of the disclosed knowledge, which encourages him. I characterize the equilibrium disclosure strategies for any knowledge spillover in a simple Cournot duopoly model, and illustrate the results graphically. Moreover, I compare the strategic disclosure equilibria with equilibria under non-strategic disclosure.
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