Disclosure regulation in duopoly markets: Proprietary costs and social welfare

J.P.M. Suijs, J.L. Wielhouwer

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The argument of proprietary costs is commonly used by firms to object against proposed disclosure regulations. The goal of this paper is to improve our understanding of the welfare consequences of disclosure in duopoly markets and to identify market settings where proprietary costs are a viable argument for firms to remain silent. We, therefore, solve the optimal disclosure strategies and distinguish two different potentially costly effects of disclosing private information: the strategic information effect and the market information effect. We identify the market settings for which a regulator prefers to impose disclosure regulation so as to maximise consumer surplus or total surplus. Regulation may be necessary because (i) the increase in welfare outweighs proprietary costs to the firms, or (ii) firms are trapped in a prisoners' dilemma. The first primarily applies to Bertrand competition with demand uncertainty and, to a lesser extent, to Cournot competition. The second applies primarily to Cournot competition and Bertrand competition with cost uncertainty.
Original languageEnglish
Pages (from-to)227-255
JournalThe European Accounting Review
Volume23
Issue number2
Early online date24 Oct 2013
DOIs
Publication statusPublished - 2014

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Proprietary costs
Social welfare
Duopoly
Disclosure regulation
Information effects
Disclosure
Bertrand competition
Cournot competition
Surplus
Cost uncertainty
Demand uncertainty
Market information
Private information
Consumer surplus
Prisoners' dilemma

Cite this

Suijs, J.P.M. ; Wielhouwer, J.L. / Disclosure regulation in duopoly markets : Proprietary costs and social welfare . In: The European Accounting Review. 2014 ; Vol. 23, No. 2. pp. 227-255.
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Disclosure regulation in duopoly markets : Proprietary costs and social welfare . / Suijs, J.P.M.; Wielhouwer, J.L.

In: The European Accounting Review, Vol. 23, No. 2, 2014, p. 227-255.

Research output: Contribution to journalArticleScientificpeer-review

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