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Information sharing and lending market competition under strong adverse selection

Author

Listed:
  • Jorge Fernández-Ruiz
  • Miguel García-Cestona

Abstract

In a relatively recent paper, Gehrig and Stenbacka (Eur Econ Rev 51, 77–99, 2007 ) show that information sharing increases banks’ profits to the detriment of creditworthy entrepreneurs in a model of a banking duopoly with switching costs and poaching. They restrict their analysis to the case in which adverse selection is not too strong. We analyze the complementary case and show that, when the economy suffers from strong adverse selection, information sharing still increases banks’ profits, but it may or may not hurt talented entrepreneurs. Copyright The Author(s) 2013

Suggested Citation

  • Jorge Fernández-Ruiz & Miguel García-Cestona, 2013. "Information sharing and lending market competition under strong adverse selection," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 235-245, June.
    • Handle: RePEc:spr:series:v:4:y:2013:i:2:p:235-245
    DOI: 10.1007/s13209-012-0090-y
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    More about this item

    Keywords

    Information sharing; Lending relationships; Poaching; Equilibrium switching; G21; L15; D82;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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