On Market Concentration and Disclosure

35 Pages Posted: 5 May 2020

See all articles by Edwige Cheynel

Edwige Cheynel

Washington University in St. Louis - John M. Olin Business School

Amir Ziv

Columbia Business School

Date Written: April 9, 2020

Abstract

Verrecchia (1983, 1990) introduced the proprietary cost hypothesis in which exogenous disclosure costs are a reduced-form interpretation of lost competitive advantage in product markets. We develop a micro-foundation for this disclosure cost in a Cournot game and explicitly derive the cost as a function of market structure. When the market is sufficiently competitive, this model has a reduced-form representation similar to a standard voluntary disclosure game with a partial disclosure equilibrium. Proprietary costs are increasing in the number of competitors, the degree of product substitution, overall uncertainty and production costs. The analysis also offers new empirical predictions on the interaction between disclosure choice, managerial horizon and entry.

Keywords: Product Market; Competition; Disclosure; Entry; Proprietary Costs

JEL Classification: D82; L13; L50; M23; M4

Suggested Citation

Cheynel, Edwige and Ziv, Amir, On Market Concentration and Disclosure (April 9, 2020). Available at SSRN: https://ssrn.com/abstract=3572401 or http://dx.doi.org/10.2139/ssrn.3572401

Edwige Cheynel (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Amir Ziv

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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