Voluntary Disclosure under Imperfect Competition: Experimental Evidence

Lucy F. Ackert, Bryan K. Church, and Mandira Roy Sankar
Federal Reserve Bank of Atlanta
Working Paper 98-7
June 1998

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This study investigates disclosure behavior when a manager has incentives to influence the actions of a product market competitor in a Cournot duopoly. Theoretical research suggests that under various conditions the manager has incentives to withhold some signals and disclose others. Using an experimental economics method, we find support for partial information disclosure. Our results suggest that when the manager receives private information about industrywide cost, unfavorable (favorable) information is disclosed (withheld) and the competitor adjusts production accordingly. In contrast, when the manager receives private information about firm-specific cost, disclosure behavior is not affected by the favorableness of the information and the competitor's production decision is invariant to the disclosure choice.

JEL classification: D82, L10

Key words: information disclosure, private information, product market competitors

The authors gratefully acknowledge the financial support of the Social Sciences and Humanities Research Council of Canada and the research assistance of Matthew Betik, Karen Butler, and Shawna White. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.

Please address questions regarding content to Lucy F. Ackert, Research Department, Federal Reserve Bank of Atlanta, 104 Marietta Street, NW, Atlanta, Georgia 30303-2713, 404/498-8783, 404/498-8810 (fax), lucy.ackert@atl.frb.org; Bryan K. Church, DuPree School of Management, Georgia Institute of Technology, Atlanta, Georgia 30332, 404/894-3907, bchurch@mgt-sun2.gatech.edu; or Mandira Roy Sankar, Leventhal School of Accounting, University of Southern California, Los Angeles, California 90089, 213/740-1846, msankar@sba2.usc.edu.