Unaware consumers and disclosure of deficiencies

Stefanie Y. Schmitt and Dominik Bruckner

Games and Economic Behavior, 2023, vol. 142, issue C, 1018-1042

Abstract: We analyze firms' incentives to disclose deficiencies that reduce the quality of goods when consumers lack information. We distinguish two types of information: First, only some consumers are aware of the existence of deficiencies. Second, only some consumers have the expertise to infer the true levels of deficiencies once they are aware of the existence of deficiencies. We show that the interplay of awareness and expertise affects firms' incentives to disclose. In particular, an equilibrium where both firms remain silent can exist. In addition, we show that whether an increase in competition leads to more or less disclosure depends on the levels of awareness and expertise in the market. We highlight that the effectiveness of policy interventions depends on the composition of the consumer side.

Keywords: Awareness; Competition; Disclosure; Expertise; Product quality (search for similar items in EconPapers)
JEL-codes: D83 L15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:142:y:2023:i:c:p:1018-1042

DOI: 10.1016/j.geb.2023.10.012

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