Voluntary versus Mandatory Disclosure: The Case of Standard Contracts

The theory of asymmetric information suggests that economic agents tend to use their informational power to exploit other less informed players. In this paper we prove that even in the presence of sophisticated consumers who can read contract terms at some positive cost, a monopoly seems to ensure an outcome which turns out overall less inefficient than in competition. Precisely, we find that competitive sellers may not disclose their terms in equilibrium even if the related cost is lower than the cost for consumers to read; conversely a monopolist may not disclose in equilibrium only if the related cost is higher than the reading cost. Such results overturn the traditional belief that competition among sellers, contrary to a monopoly, leads the market to an efficient outcome, and suggest that regulations to ensure contract disclosure may benefit consumers, who gain in terms of payoffs, only if the market is competitive.