| Abstract |
The objective of this paper is to examine the interaction between firm's information acquisition choice and mandatory disclosure in the presence of proprietary costs. More specifically, I develop a Cournot duopoly model with stochastic demand in which acquiring information is endogenous. Further, in order to test the theoretical predictions I use an experimental economics approach and conduct a series of experiments. The results demonstrate that mandatory disclosure diminishes firm's incentive to acquire industry-wide demand information when information acquisition is costly and endogenous. Further, I also show that firm's production decision is improved by acquiring information. Taken together, although acquiring information improves firm's production decision, mandatory disclosure diminishes firm's incentive to do so, and thus, deteriorates firm's information environment. This leads to inefficient production, which in turn, might have a substantial impact on market outcomes. |