Competition, Disclosure and Signalling1. (21st March 2014)

• Record Type: Journal Article
• Authors: Janssen, Maarten C.W.; Roy, Santanu
• Is Part Of: Economic journal. Volume 125:Number 582(2015)
• Page Start: 86
• Page End: 114
• Publication Date: 2014-03-21
• Subjects: Economics -- Periodicals; Économie politique -- Périodiques; 330.05
• DOI: 10.1111/ecoj.12110
• Languages: English
• ISSNs: 0013-0133

Abstract

<abstract abstract-type="main" id="ecoj12110-abs-0001"> <title> <x xml:space="preserve">Abstract</x> </title> <p>Competition creates strategic incentives for firms to communicate private information about product quality through signalling rather than voluntary disclosure. In a duopoly where firms may disclose quality before setting prices and prices may signal quality, non‐disclosure by all firms may often be the unique symmetric outcome even if disclosure cost vanishes. A high‐quality firm may not disclose even if it has strong competitive advantage over a low‐quality rival. This provides an alternative explanation of infrequent voluntary disclosure. Although product information is always communicated whether or not firms disclose, signalling distortions may provide a rationale for mandatory disclosure regulation.</p> </abstract>