Strategic information disclosure: The case of multiattribute products with heterogeneous consumers

V. Joseph Hotz, Mo Xiao

Research output: Contribution to journalArticle

24 Citations (Scopus)

Abstract

We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers' multidimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.

Original languageEnglish (US)
Pages (from-to)865-881
Number of pages17
JournalEconomic Inquiry
Volume51
Issue number1
DOIs
StatePublished - Jan 2013

Fingerprint

Heterogeneous consumers
Information disclosure
Disclosure
Trigger
Profit
Elastic demand
Price competition
Costs
Private information
Product quality
Quality attributes
Differentiated products
Incentives

ASJC Scopus subject areas

  • Economics and Econometrics
  • Business, Management and Accounting(all)

Cite this

Strategic information disclosure : The case of multiattribute products with heterogeneous consumers. / Hotz, V. Joseph; Xiao, Mo.

In: Economic Inquiry, Vol. 51, No. 1, 01.2013, p. 865-881.

Research output: Contribution to journalArticle

@article{6967bc730a82488ba5162d22ce4e6a9d,
title = "Strategic information disclosure: The case of multiattribute products with heterogeneous consumers",
abstract = "We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers' multidimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.",
author = "Hotz, {V. Joseph} and Mo Xiao",
year = "2013",
month = "1",
doi = "10.1111/j.1465-7295.2010.00340.x",
language = "English (US)",
volume = "51",
pages = "865--881",
journal = "Economic Inquiry",
issn = "0095-2583",
publisher = "Wiley-Blackwell",
number = "1",

}

TY - JOUR

T1 - Strategic information disclosure

T2 - The case of multiattribute products with heterogeneous consumers

AU - Hotz, V. Joseph

AU - Xiao, Mo

PY - 2013/1

Y1 - 2013/1

N2 - We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers' multidimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.

AB - We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers' multidimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.

UR - http://www.scopus.com/inward/record.url?scp=84870444030&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84870444030&partnerID=8YFLogxK

U2 - 10.1111/j.1465-7295.2010.00340.x

DO - 10.1111/j.1465-7295.2010.00340.x

M3 - Article

AN - SCOPUS:84870444030

VL - 51

SP - 865

EP - 881

JO - Economic Inquiry

JF - Economic Inquiry

SN - 0095-2583

IS - 1

ER -