Information Disclosure in the Presence of Competition: Evidence from the Pharmaceutical Industry

Abstract

This paper studies how competition impacts innovative firms’ voluntary disclosure of product quality information. Our empirical context is the pharmaceutical industry, where firms must decide whether to disclose drug quality information acquired in clinical trials. Leveraging variation in clinical trial sponsorship and a difference-in-differences strategy, we show that firms in competitive markets are less likely to publicly disclose clinical trial results. In exploring mechanisms, we find evidence for a competition-driven decline in product quality as driving these findings. These results suggest that market structure plays an important role in shaping firms’ strategic disclosure decisions.

Keywords: Competition, Information Disclosure, Innovation, Health Care Markets, Drugs

JEL Classification: D21, D43, D82, D83, I11, L65, O31