Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, September 28, 2020

Voluntary Disclosure in a Cournot-Bertrand Duopoly

Voluntary Disclosure in a Cournot-Bertrand Duopoly

Michael Kopel

University of Graz

Eva Putz

University of Graz

Abstract

The literature on voluntary disclosure in oligopolies concentrates either on Cournot markets where firms compete in quantities or on Bertrand markets where firms compete in prices. In this paper we study voluntary disclosure of managerial contract information in a Cournot-Bertrand duopoly where one firm sets quantities while the other firm sets prices. Such a hybrid structure frequently captures firm behavior in real-world markets. Accordingly, this paper contributes to our understanding of how firms' choices of strategic market variables influences firms' voluntary disclosure incentives. In a setting where firm owners provide strategic incentives to their managers and can either disclose the details of the managerial compensation contract or keep them secret, we find that the Cournot firm punishes its manager for sales and the Bertrand firm induces more aggressive market choices by rewarding sales. Firms' disclosure choices in equilibrium depend on the level of product substitution. A full disclosure equilibrium where both firms reveal the details of their managerial contract information occurs if the firms' products are sufficiently differentiated. In this case, voluntary disclosure leads to lower consumer welfare, but higher total welfare than if contract information is kept secret by both firms. If product differentiation is low, then we find two partial disclosure equilibria where either the Cournot firm or the Bertrand firm keeps contract information private. In this case, we argue that mandating disclosure can lead to an increase consumer and social welfare, but might decrease firm profits.

https://lawprofessors.typepad.com/antitrustprof_blog/2020/09/voluntary-disclosure-in-a-cournot-bertrand-duopoly.html

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