Disclosure, Competition and Learning from Asset Prices

63 Pages Posted: 8 Jan 2018 Last revised: 9 Aug 2021

See all articles by Liyan Yang

Liyan Yang

University of Toronto - Rotman School of Management

Yan Xiong

The Hong Kong University of Science and Technology

Date Written: January 9, 2020

Abstract

We study voluntary information disclosure by oligopoly firms in a setting in which firms learn information from asset prices to guide their production decisions. A firm that discloses information risks losing a competitive advantage over its rivals but may benefit from learning valuable information from a more informative asset market. Considering the financial market helps the product market escape a nondisclosure equilibrium with low total surplus. Firms' disclosure decisions can exhibit strategic complementarity, leading to multiple equilibria. Firms' endogenous disclosure behavior also gives rise to two novel comparative statics: fiercer competition in the product market can reduce consumer and total surplus, and increased noise trading in the financial market can improve price informativeness.

Keywords: disclosure, product market competition, feedback effect, complementarity, total surplus, price informativeness

JEL Classification: D61, G14, L13, M41

Suggested Citation

Yang, Liyan and Xiong, Yan, Disclosure, Competition and Learning from Asset Prices (January 9, 2020). Rotman School of Management Working Paper No. 3095970, Journal of Economic Theory, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3095970 or http://dx.doi.org/10.2139/ssrn.3095970

Liyan Yang (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Yan Xiong

The Hong Kong University of Science and Technology ( email )

HKUST
Kowloon
Hong Kong
Hong Kong

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