Competitive Information Design

Abstract

In this paper, we present a simple model of information provision in competitive markets. We depart from previous literature in that we allow firms to choose both prices and information revelation policies. Under the assumption that the underlying state is binary, we show that in the unique symmetric equilibrium firms randomize over binary experiments, and those firms that offer comparatively better deals disclose more information. Nevertheless, policies directed at increasing information disclosure relax competition and may reduce aggregate surplus. We provide several applications, including labor markets and venture capital financing.

Keywords: Information Design, Competition, Disclosure

JEL Classification: D83, L11, L13