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Horizontal Product Differentiation: Disclosure and Competition

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Abstract

The unraveling argument says that when a firm may produce different qualities and quality is unknown to consumers, the firm has an incentive to disclose the private information as in any pool of firms there is a best quality firm and this firm 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 differentiated. This paper argues that with horizontally differentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have firms fully disclosing the variety they produce.

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  • Maarten C. W. Janssen & Mariya Teteryanikova, 2012. "Horizontal Product Differentiation: Disclosure and Competition," Vienna Economics Papers vie1205, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie1205
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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