Voluntary Quality Disclosure and Market Interaction

Marketers disclose quality information directly to potential consumers using a variety of communication channels. This study investigates how competition may influence duopoly firms' incentive to voluntarily and truthfully reveal quality information. It is shown that firms in competitive markets reveal less information than a monopoly firm does. In addition, sequential disclosure leads to asymmetric equilibrium disclosure behavior: The disclosure leader discloses unambiguously less information than that in the simultaneous disclosure case, whereas the disclosure follower ex ante reveals less (more) private information than both the disclosure leader and that in the simultaneous disclosure case when the disclosure cost is sufficiently low (high). We also examine the firms' equilibrium ex-ante profits and social welfare. It is demonstrated that there may exist a U-shaped relationship between equilibrium monopoly profits (or social welfare under both monopoly and duopoly) and the disclosure cost. Moreover, in comparison to the simultaneous disclosure case, sequential disclosure can lead to increasingly softened competition, improving both firm profitability and social welfare