Quality disclosure with information value under competition

Abstract

In this paper, a new influence factor, called information value, is introduced to examine the question of voluntary quality disclosure. As a benchmark, we first consider a monopolistic case. The seller’s equilibrium disclosure strategy and ex ante utility are obtained, respectively. The result shows that the information value is of special stimulation to sellers disclosure, since it can counteract the disclosure cost partly. Then two duopoly cases, containing a simultaneous disclosure case and a sequential disclosure case, are considered, respectively. The result indicates that the seller discloses less information than that in the monopolistic case due to competition. Moreover, compared to the simultaneous disclosure case, in the sequential disclosure case, competition is softened and both sellers’ utilities and the social welfare are improved, but at the cost of sacrificing the consumer’s surplus. Benefiting from the competition, the social welfare and the consumer’s surplus are both bigger than that in the monopolistic case, yet the seller’s utility is smaller.