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Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers

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  • V. Joseph Hotz
  • Mo Xiao

Abstract

We 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.

Suggested Citation

  • V. Joseph Hotz & Mo Xiao, 2006. "Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers," NBER Working Papers 11937, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11937
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    More about this item

    JEL classification:

    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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