A Note on Quality Disclosure and Competition |
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| Authors: | Jos Jansen |
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| Affiliation: | Aarhus University, Department of Economics and Business Economics, Fuglesangs Allé 4, Aarhus V, Denmark, and Max Planck Institute for Research on Collective Goods, Bonn, Germany |
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| Abstract: | Competitive pressure is lower in markets where goods are more differentiated. I analyze how a change in the degree of horizontal product differentiation affects the incentives of duopolists to disclose quality information. If disclosure is costly, then a firm discloses high qualities but conceals low qualities in equilibrium. The higher the disclosure cost, the higher the equilibrium threshold below which firms conceal quality information. I show that the effect of product differentiation on quality disclosure depends on the cost of disclosure. For low (high) disclosure costs, a firm discloses more (respectively, less) quality information if goods become more differentiated. |
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