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Voluntary disclosure of product quality in competitive markets
(School of Business and Economics, Universidad del Desarrollo, 2016-06) Troncoso-Valverde, Cristián
This note examines the incentives to communicate private information about product quality in markets in which sellers can voluntarily disclose this information before competing on prices. We provide sufficient conditions for the existence of two types of symmetric equilibria, one in which every type of seller fully discloses the quality of its product and one in which no such disclosures are made. We then show that if the disclosure cost is not too high the full disclosure equilibrium Pareto-dominates the full non-disclosure one, suggesting that competition may increase rather than reduce incentives to reveal information through disclosure