NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Strategic Information Disclosure: The Case of Multi-Attribute Products with Heterogeneous Consumers

V. Joseph Hotz, Mo Xiao

NBER Working Paper No. 11937
Issued in January 2006
NBER Program(s):   IO

We examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, we focus on the case of differentiated products with multiple attributes and heterogeneous consumers. We show that there exist certain configurations of consumers’ multi-dimensional preferences under which a firm, no matter whether producing a high- or low-quality product, may choose not to reveal the quality even with zero disclosure costs. The failure of information unraveling arises when providing consumers with more information results in more elastic demand, which triggers more intensive price competition and leads to lower prices and profits for competing firms. As a result, the equilibrium in which disclosure is voluntary may diverge from that in which disclosure is mandatory.

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This paper was revised on August 21, 2010

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Document Object Identifier (DOI): 10.3386/w11937

Published: V. Joseph Hotz & Mo Xiao, 2013. "Strategic Information Disclosure: The Case Of Multiattribute Products With Heterogeneous Consumers," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 865-881, 01. citation courtesy of

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