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Disclosure, competition, and learning from asset prices

Yan Xiong and Liyan Yang

Journal of Economic Theory, 2021, vol. 197, issue C

Abstract: We study voluntary information disclosure by oligopoly firms in a setting in which firms learn information from asset prices to guide their production decisions. A firm that discloses information risks losing a competitive advantage over its rivals but may benefit from learning valuable information from a more informative asset market. Considering the financial market helps the product market escape a nondisclosure equilibrium with low total surplus. Firms' disclosure decisions can exhibit strategic complementarity, leading to multiple equilibria. Firms' endogenous disclosure behavior also gives rise to two novel comparative statics: fiercer competition in the product market can reduce consumer and total surplus, and increased noise trading in the financial market can improve price informativeness.

Keywords: Disclosure; Product market competition; Feedback effect; Complementarity; Total surplus; Price informativeness (search for similar items in EconPapers)
JEL-codes: D61 G14 L13 M41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jet.2021.105331

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