Disclosure to Competitors in Light of Endogenous Firm Investments

Author(s)

Anil Arya, Hans Frimor, Brian Mittendorf, Thomas Pfeiffer

Abstract

This paper extends a familiar model of competition and disclosure to incorporate the practical feature that firms may not only hold private information about consumer demand, but they can also influence demand by the investments they make in improving product quality. Such investments can reflect installing new product features, improving durability, adding design enhancements, and the like. The paper demonstrates that investments stand to significantly influence the firm’s preference for disclosures and, in fact, become a determining feature of disclosure choice. In particular, under Cournot competition, a firm prefers disclosure when the industry-wide effects of information and investments are concordant. That is, if both product quality and demand information have large positive industry spillovers, disclosure is desirable because it promotes implicit cooperation in investments; if both have low spillover, disclosure permits a firm to convey strength to a rival and then use quantity and quality in concert to dominate the market precisely when the firm’s demand is at its peak.

Organisation(s)

Department of Accounting, Innovation and Strategy

External organisation(s)

Ohio State University, University of Southern Denmark (SDU)

Journal

Contemporary Accounting Research

ISSN

0823-9150

Publication date

2025

Peer reviewed

Yes

Austrian Fields of Science 2012

502006 Controlling, 502052 Business administration

Keywords

Portal url

https://ucrisportal.univie.ac.at/en/publications/f05a0871-c4e0-4cd5-ad9c-ecfc19d8fd39