Costly Information Disclosure in Oligopoly

Insuk Cheong and Jeong-Yoo Kim

Journal of Industrial Economics, 2004, vol. 52, issue 1, pages 121-132

Abstract: We examine the effect of competition on the incentive of firms to disclose quality to consumers before trade when information disclosure is not costless. We demonstrate that no firm will disclose information in the limit, no matter how small the disclosure cost is; that is, the market outcome converges to complete concealment of information as the number of competing firms becomes larger. Nonetheless, it can be shown that under a mild condition, the equilibrium amount of information disclosure is socially excessive for any number of firms, so discouraging information disclosure by levying a tax may increase social welfare. Copyright Blackwell Publishing Ltd. 2004.

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Journal of Industrial Economics is edited by Pierre Regibeau, Yeon-Koo Che, Kenneth Corts, Thomas Hubbard, Patrick Legros and Frank Verboven

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