Quality disclosure with information value under competition
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ORIGINAL ARTICLE
Quality disclosure with information value under competition Yanfei Lan1 · Jin Peng2 · Fengwu Wang1 · Changshui Gao3
Received: 9 November 2015 / Accepted: 4 March 2017 © Springer-Verlag Berlin Heidelberg 2017
Abstract In this paper, a new influence factor, called information value, is introduced to examine the question of voluntary quality disclosure. As a benchmark, we first consider a monopolistic case. The seller’s equilibrium disclosure strategy and ex ante utility are obtained, respectively. The result shows that the information value is of special stimulation to sellers disclosure, since it can counteract the disclosure cost partly. Then two duopoly cases, containing a simultaneous disclosure case and a sequential disclosure case, are considered, respectively. The result indicates that the seller discloses less information than that in the monopolistic case due to competition. Moreover, compared to the simultaneous disclosure case, in the sequential disclosure case, competition is softened and both sellers’ utilities and the social welfare are improved, but at the cost of sacrificing the consumer’s surplus. Benefiting from the competition, the social welfare and the consumer’s surplus are both bigger than that in the monopolistic case, yet the seller’s utility is smaller. * Jin Peng [email protected] Yanfei Lan [email protected] Fengwu Wang [email protected] Changshui Gao [email protected] 1
Institute of Systems Engineering, Tianjin University, Tianjin 300072, China
2
Institute of Uncertain Systems, Huanggang Normal University, Hubei 438000, China
3
Ministry of Industry and Information Technology, Beijing 100846, China
Keywords Quality disclosure · Information value · Disclosure cost · Competition
1 Introduction Along with global economy high-speed development and technical progress, new products are increasingly emerging, especially in markets such as automobile, computer, electronics, fashion and so on, which leads to a shorter product life cycle. Sellers usually have valuable exact information about their own products which are not observable by potential consumers and sometimes even their rivals. Due to lack of information about the product quality, consumers’ willingness of purchasing would decrease. To solve this problem, the sellers can disclose quality information to the market through various kinds of credible and verifiable means, which can increase the consumers’ utility and can be named as information value. For example, to facilitate the consumers’ use and increase their utility, cosmetics firms encourage the consumers to try their products by offering free samples (see Bawa and Shoemaker [2]) and free returns, labeling the composition especially for the packaged foods, rating by industry associations or government agencies, and setting up online forums which make consumers communicate each other’s experiences and provide truthful product information (see Chen and Xie [6], Dellarocas [8] and Mayzlin [22]). A large body of literature examines sell
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