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Softening Competition by Inducing Switching in Credit Markets

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  • Jan Bouckaert
  • Hans Degryse

Abstract

We show that competing banks relax overall competition by inducing borrowers to switch lenders. We illustrate our findings in a two‐period model with adverse selection where banks strategically commit to disclosing borrower information. By doing this, they invite rivals to poach their first‐period market. Disclosure of borrower information increases the rival's second‐period profits. This dampens competition for serving the first‐period market.

Suggested Citation

  • Jan Bouckaert & Hans Degryse, 2004. "Softening Competition by Inducing Switching in Credit Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 52(1), pages 27-52, March.
    • Handle: RePEc:bla:jindec:v:52:y:2004:i:1:p:27-52
    DOI: 10.1111/j.0022-1821.2004.00215.x
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    References listed on IDEAS

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