Disclosure, Competition, and Learning from Asset Prices
51 Pages Posted: 8 Jan 2018 Last revised: 30 Apr 2019
Date Written: January 2019
I study voluntary disclosure of duopoly firms when they learn information from asset prices. By disclosing information, a firm incurs a cost of losing competitive advantage to its rival firm but benefits from learning from a more informative asset market. Three types of equilibrium arise: nondisclosure, partial disclosure, and full disclosure. In a partial disclosure equilibrium, price informativeness and firm profits increase with the size of noise trading in the financial market. Firms' disclosure decisions can exhibit strategic complementarity, which leads to both a disclosure equilibrium and a nondisclosure equilibrium.
Keywords: Disclosure, product market competition, proprietary cost, feedback effect, complementarity and multiplicity.
JEL Classification: D61, G14, M41
Suggested Citation: Suggested Citation