Disclosure Environment and Investment Information in Multiple Markets

Abstract

We study the effect of disclosure requirements on a firm's investment decisions when it competes with an identical competitor in multiple (two) markets. We assume that firms have limited investment resources, and we focus on cases in which the disclosure environment may differ from market to market. As with previous studies on single Cournot competition, our results show that firms pursue more aggressive investments under disclosure than under non-disclosure in symmetric disclosure environments. However, firms invest less in a market with disclosure than in one without if both markets have asymmetric disclosure environments. This is because firms are willing to concentrate their limited investment resources on a less competitive market, and multimarket contact allows firms to predict rival firm behavior.