Disclosure Regulation in Duopoly Markets: Proprietary Costs and Social Welfare

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

Research output: Contribution to JournalArticleAcademicpeer-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. © 2013 © 2013 European Accounting Association.
Original languageEnglish
Pages (from-to)227-255
JournalEuropean Accounting Review
Volume23
Issue number2
Early online date24 Oct 2013
DOIs
Publication statusPublished - 2014

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

Cite this

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Disclosure Regulation in Duopoly Markets: Proprietary Costs and Social Welfare. / Suijs, J.P.M.; Wielhouwer, J.L.

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

Research output: Contribution to JournalArticleAcademicpeer-review

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