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Horizontal Product Differentiation: Disclosure and Competition

By  |  October 31, 2012

Posted by D. Daniel Sokol

Maarten C. W. Janssen (University of Vienna) and Mariya Teteryanikova (University of Vienna) discuss Horizontal Product Differentiation: Disclosure and Competition

ABSTRACT: The unraveling argument says that when a rm may produce dierent qualities and quality is unknown to consumers, the rm has an incentive to disclose the private information as in any pool of rms there is a best quality rm and this rm has an incentive to disclose. Recent literature has established that this argument does not carry over to an environment where the product is not vertically, but horizontally dierentiated. This paper argues that with horizontally dierentiated products, competition restores the unraveling argument. In a duopoly market we show that all equilibria of the disclosure game have rms fully disclosing the variety they produce.