Horizontal Product Differentiation: Disclosure and Competition

Maarten C. W. Janssen () and Mariya Teteryanikova ()
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Maarten C. W. Janssen: https://econ.univie.ac.at
Mariya Teteryanikova: https://econ.univie.ac.at

Vienna Economics Papers from University of Vienna, Department of Economics

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.

JEL-codes: D43 D82 M37 (search for similar items in EconPapers)
Date: 2012-07
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