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Quality Disclosure Formats in a Distribution Channel

Author

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  • Liang Guo

    (Department of Marketing, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong, China)

Abstract

Firms normally disclose quality information to consumers using two alternative formats: either directly to consumers or indirectly through downstream retailers. This study investigates optimal disclosure strategies/formats in a channel setting with bilateral monopolies. It shows that retail disclosure leads to more equilibrium information revelation. This is because the manufacturer can, through wholesale price cuts, partially absorb the retailer's effective disclosure cost and thus increase the retailer's incentive for disclosure. The conditions under which a particular disclosure format arises as the manufacturer's optimal choice are also examined. Even though direct disclosure is the ex post dominated option, the manufacturer may benefit from committing ex ante to the direct disclosure format when the cost of disclosure is sufficiently high.

Suggested Citation

  • Liang Guo, 2009. "Quality Disclosure Formats in a Distribution Channel," Management Science, INFORMS, vol. 55(9), pages 1513-1526, September.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:9:p:1513-1526
    DOI: 10.1287/mnsc.1090.1035
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    References listed on IDEAS

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