Disclosure of information under competition: An experimental study

Sheth, Jesal D.

Abstract

The theory of voluntary disclosure of information posits that market forces lead firms (senders) to disclose information through a process of unravelling. This prediction requires that consumers (receivers) hold correct beliefs and, in equilibrium, make adverse inferences about non-disclosed information. Previous research finds that receivers are naïve and do not sufficiently infer non-disclosure as bad news, leading to the failure of complete unravelling. This paper experimentally examines whether competition between senders increases unravelling and decreases receivers' naivety about non-disclosed information. We find that while complete unravelling fails to occur, competition between senders significantly increases unravelling and receivers' overall welfare. Receivers' welfare increases despite no significant difference in their guesses or beliefs about non-disclosed information relative to the treatment without competition, and this is driven by higher rates of disclosure by senders. We conclude that competition between senders positively affects disclosure of information and receivers' welfare.

Citation

Sheth, J. D. (2021). Disclosure of information under competition: An experimental study. Games and Economic Behavior, 129, 158-180. https://doi.org/10.1016/j.geb.2021.05.009

• Journal Article Type: Article
• Acceptance Date: May 25, 2021
• Online Publication Date: Jun 2, 2021
• Publication Date: Sep 1, 2021
• Deposit Date: Nov 17, 2021
• Publicly Available Date: Jun 3, 2023
• Journal: Games and Economic Behavior
• Print ISSN: 0899-8256
• Electronic ISSN: 1090-2473
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 129
• Pages: 158-180
• DOI: https://doi.org/10.1016/j.geb.2021.05.009
• Keywords: Economics and Econometrics; Finance; Competition; Experiment; Disclosure; Verifiable information; Conflict of interest
• Public URL: https://nottingham-repository.worktribe.com/output/6727964
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S089982562100066X