Quality disclosure with substitute and complementary goods

ABSTRACT

This paper analyzes the quality disclosure when firms simultaneously choose the quantities of products to be produced. By assuming that each firm is privately informed about the quality of its own products and makes quality disclosure decisions after observing private information, we identify the effects of the degree of substitution/complementarity on the amount of disclosed information. We find that when commodities are substitute goods, fixing the disclosure cost, the relationship between competitiveness and the amount of disclosed information is non-monotonic. Furthermore, when commodities are complementary goods, increasing the degree of complementarity will lead to more information being disclosed.

KEYWORDS:

• Quality disclosure
• substitute goods
• complementary goods
• competition

JEL CLASSIFICATION:

• D21
• D82
• L13

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ For simplicity, we assume that the marginal cost is zero. We will discuss the robustness of the main results after relaxing this assumption in Section 4. Besides, the zero marginal cost assumption is extensively used in the existing literature (Gal-Or 1985; Vives 1984; Board 2009; Jansen 2017).

Additional information

Funding

This work was supported by the National Natural Science Foundation of China (NSFC) [71703178].