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Financial intermediation and entry-deterrence

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  • Neelam Jain
  • Thomas D. Jeitschko
  • Leonard J. Mirman

Abstract

In this paper, we analyze the interaction between an incumbent firm's financial contract with abank and its product market decisions in the face of the threat of entry, in a dynamic model.The main results of the paper are: there exists a separating equilibrium with no limit pricing; thelow-cost incumbent repays more to the bank in the first period, due to the threat of entry; andthere are parameter values for which the bank makes more profits with the threat of entry thanwithout.

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File URL: http://hdl.handle.net/10.1007/s00199-002-0351-2
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 22 (2003)
Issue (Month): 4 (November)
Pages: 793-815

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Handle: RePEc:spr:joecth:v:22:y:2003:i:4:p:793-815

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Related research

Keywords: Keywords and Phrases: Entry; Intermediation; Limit pricing; Information.; JEL Classification Numbers: D8; G3; L1.;

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References

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  1. Maksimovic, Vojislav, 1990. " Product Market Imperfections and Loan Commitments," Journal of Finance, American Finance Association, vol. 45(5), pages 1641-53, December.
  2. Dan Kovenock & Gordon M Phillips, 1995. "Capital Structure And Product Market Rivalry: How Do We Reconcile Theory And Evidence?," Working Papers 95-3, Center for Economic Studies, U.S. Census Bureau.
  3. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
  4. Zingales, Luigi, 1998. "Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry," CEPR Discussion Papers 1778, C.E.P.R. Discussion Papers.
  5. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, vol. 49(3), pages 1015-40, July.
  6. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
  7. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-96, July.
  8. Phillips, Gordon M., 1995. "Increased debt and industry product markets An empirical analysis," Journal of Financial Economics, Elsevier, vol. 37(2), pages 189-238, February.
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Citations

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Cited by:
  1. Leonard J. Mirman & Thomas Jeitschko & Neelam Jain, 2001. "Financial Intermediation and Entry-Deterrence: A survey," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-13.
  2. Jain, Neelam, 2011. "Entry deterrence and experimentation under demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 464-472, July.
  3. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers 02-043/2, Tinbergen Institute.

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