Disclosure of Product Information After Price Competition

Abstract

We study under what conditions product information sufficiently unravels in a competitive environment. Information sufficiently unravels if the consumer makes the same purchasing decision as under complete information. The consumer is uncertain about the sellers’ product characteristics while she has private information about her preference for differentiated products. In contrast to the prior literature, we focus on the case where the sellers compete to attract the consumer by disclosing product information only after they set prices for their individual products. We provide a necessary and sufficient condition on the consumer’s relative comparison of one seller’s product to the other’s for every outcome to be sufficient unraveling under comparative and non-comparative advertisements, respectively. We show, by example, that competition may enhance information disclosure only if the consumer has limited reasoning capability.