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Voluntary Disclosure of Product Information: The Case of E-Book Samples

Published: 2015
Type: Articles in Refereed Journals (International)
Published by: SSRN

Abstract

An important question in markets with asymmetric information is whether sellers will voluntarily disclose private information about their products or whether mandatory disclosure policies are necessary. For an answer to both questions, it is important to understand the link between disclosure and pricing. This paper therefore studies the empirical relationship between both in a setting where I observe whether authors on an internet self-publishing platform offer free samples of their e-books. My results show that for e-books without a posted online rating, indicating that their quality is unknown to buyers, offering a sample is associated with a lower price. This is not consistent with the canonical models of voluntary disclosure, but rather with non-disclosing authors obfuscating their quality and setting a price above their true quality. This is further supported by authors of non-rated e-books being less likely to offer samples. For e-books with a posted online rating, I find the opposite: a positive relationship between offering a sample and price. As I control for the quality of e-books by including their average posted rating into my regressions, the positive relationship is consistent with authors earning a “match-premium” when offering a sample, which is predicted by a recently emerging literature on disclosure of horizontal product characteristics.

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