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Costly Information Disclosure in Oligopoly
Author(s) -
Cheong Insuk,
Kim JeongYoo
Publication year - 2004
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.0022-1821.2004.00218.x
Subject(s) - oligopoly , incentive , business , competition (biology) , outcome (game theory) , microeconomics , information asymmetry , voluntary disclosure , quality (philosophy) , full disclosure , welfare , social welfare , collusion , cournot competition , industrial organization , economics , accounting , philosophy , computer security , epistemology , computer science , political science , law , market economy , ecology , biology
We examine the effect of competition on the incentive of firms to disclose quality to consumers before trade when information disclosure is not costless. We demonstrate that no firm will disclose information in the limit, no matter how small the disclosure cost is; that is, the market outcome converges to complete concealment of information as the number of competing firms becomes larger. Nonetheless, it can be shown that under a mild condition, the equilibrium amount of information disclosure is socially excessive for any number of firms, so discouraging information disclosure by levying a tax may increase social welfare.