Voluntary information disclosure by firms can improve market efficiency and welfare. In Chinese P2P lending market, many platforms publish almost all items requested by information agencies, while others disclose much less. We consider a novel setting that firms choose both pricing and the degree of information disclosure under competition. High-type firms have a natural incentive to let investors (consumers) learn their true types. However, doing so may drive away overconfident and naive investors with misperception on other firms' products. Intense competition reduces firms' incentive to disclose information because it becomes easier to lose naive investors. Mandatory disclosure policy is welfare-improving only when regulators can ensure all firms comply. Otherwise, naive investors will be attracted by firms who slip away and shroud their information.
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