Disclosing cost information in the presence of information spillovers and ESG-concerned consumers

Abstract This paper extends prior research on firms’ ex-ante disclosure behavior by linking disclosure of private cost information to realized ESG-specific willingness to pay in a duopoly market where random cost shocks generate spillovers into firms’ negative production externalities. Spillovers reduce incentives to disclose under quantity competition but increase them under price competition, consistent with existing results. Introducing industry-wide cost shocks that induce cross-firm spillovers generates new insights: If a firm’s disclosed cost information affects the rival’s realized ESG-specific willingness to pay, disclosure is no longer a dominant strategy. This allows for overlapping symmetric disclosure equilibria across competition types and, under price competition, the coexistence of asymmetric disclosure equilibria. From a regulatory perspective, the welfare effects of disclosure mandates depend on market structure. Welfare-enhancing mandates always reduce expected damage under quantity competition but may unintentionally increase it under price competition.