Strategic Information Disclosure: The Case Of Multi-Attribute Products With Heterogenous Consumers
The authors examine the incentives for firms to voluntarily disclose otherwise private information about the quality attributes of their products. In particular, they focus on the case of differentiated products with multiple attributes and heterogeneous consumers. They 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.