In this paper, we examine the welfare effects of pre-production commitments made by firms competing in oligopoly markets and disclosure of such commitments. By commitments we refer to any device that provides a strategic incentive to alter production choices. Examples include forward contracts, capital structure, research and development investment, terms of compensation, and cost allocation. If the only purpose underlying commitment is to gain a strategic advantage in product market competition, then the result with disclosure can be characterized by Stackelberg warfare. Many potential commitments have non-strategic effects, implying a trade-off when optimizing, with imperfect achievement of both strategic (deterring rival production) and non-strategic goals. However, given disclosure, we show that in the limit as the number of commitment devices becomes large, firms achieve full Stackelberg warfare and total realization of non-strategic goals. Disclosure in this context is social welfare enhancing.

In this study, we consider the effects of the asymmetry in capital gains tax policy on the communication of private information to investors. Assuming quite plausibly that firm managers tend to favor current stockholder returns relative to future stockholder returns, though not exclusively, we identify conditions under which limitations on the deductibility of capital losses lend efficacy to unverified public disclosures that allow managers of higher value firms to separate from lower value firms in equilibrium. Although the tax asymmetry by itself may not be enough to enable separation, we show how it would nevertheless contribute to the efficiency of separation through explicitly dissipative signals. It further follows that if separation would occur by means of a dissipative signal in any event, then the tax asymmetry is welfare-enhancing. Our findings demonstrate that tax asymmetry can help resolve information asymmetry.