Disclosure Policy for Relative Performance Indicators under Product Market Competition

Abstract

In this study, I analytically examine the optimal disclosure policies for relative performance indicators in product market competition with asymmetric marginal cost. I demonstrate that under equilibrium, depending on the economic environment, asymmetric equilibrium holds (a cost-efficient firm discloses, while a cost-inefficient firm does not) or firms disclose their relative performance indicator in quantity competition, whereas, in price competition, firms disclose their relative performance indicators. In addition, I analyze welfare effects in considering disclosure regulation policy. When price competition occurs in a product market, voluntary disclosure should be managed to regulate implicit cartels. In contrast, when quantity competition occurs, the government should not regulate voluntary disclosure in large markets but should require mandatory disclosure for firms in small markets. My result suggests that the government must consider the situation of competition in a product market.