We study the strategic disclosure of demand information and product-market strategies of duopolists. In a setting where both firms receive information with some probability, we show that firms selectively disclose information in equilibrium in order to influence their competitor's product-market strategy. Subsequently, we analyze the firms' behavior in a laboratory experiment. We find that subjects often use selective disclosure strategies, and this finding appears to be robust to changes in

more »

... information structure, the mode of competition, and the degree of product differentiation. Moreover, in our experiment, subjects' product-market conduct is largely consistent with theoretical predictions. 4 This happens for the following reasons. First, the competitor drastically updates his belief about the firm's conduct in the product market, and thereby expects fiercer competition. Moreover, the average competitor becomes only slightly more optimistic about his own opportunities in the product market, since it is very likely that the competitor was already informed about the size of the market. 5 This observation is consistent with the observations in Hwang (1993, 1994). Hwang analyzes the information sharing incentives of precommitting firms (Kühn and Vives, 1995 , Raith, 1996 , and Vives, 1999 , whereas we study the incentives for strategic disclosure.