A more general framework to analyze whether voluntary disclosure is insufficient or excessive

Abstract

I analyze if the excessive quality disclosure finding of the "classical literature" extends to environments in which consumers have a downward-sloping demand. While the answer is affirmative, there are at least two situations under which disclosure is socially insufficient: (1) when there are quality levels that are too low to generate any positive demand; and (2) when the prior beliefs place sufficiently higher weight on lower qualities.

In both cases, non-disclosure by the seller leads to a severe reduction in the perceived quality, thereby significantly lowering the demand and the quantity consumed.

Keywords

• monopoly
• quality uncertainty
• verifiable information disclosure