Disclosure, Competition and Learning from Asset Prices
63 Pages Posted: 8 Jan 2018 Last revised: 9 Aug 2021
Date Written: January 9, 2020
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
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