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Borrower poaching and information display in credit markets

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Author Info
Bouckaert, J.
Degryse, H. (Tilburg University, Center for Economic Research)

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Abstract

The Riegle-Neal Act in the US and the Economic and Monetary Union in Europe are recent initiatives to stimulate financial integration. These initiatives allow new entrants to "poach" the incumbents' clients by offering them attractive loan offers. We show that these deregulations may be insuficient since asymmetric information seriously hampers the integration of credit markets. This asymmetry stems from the informational advantage incumbent banks have about their current clients vis-a-vis potential entrants. More-over, banks may strategically display some information hindering entry when asymmetric information is moderate. We also show that voluntary information sharing emerges only when asymmetric information is low.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 41.

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Date of creation: 2001
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Handle: RePEc:dgr:kubcen:200141

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August. [Downloadable!] (restricted)
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  3. J. Miguel Villas-Boas & Udo Schmidt-Mohr, 1999. "Oligopoly with Asymmetric Information: Differentiation in Credit Markets," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 375-396, Autumn. [Downloadable!] (restricted)
  4. Krigman, Laurie & Shaw, Wayne H. & Womack, Kent L., 2001. "Why do firms switch underwriters?," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 245-284, May. [Downloadable!] (restricted)
  5. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December. [Downloadable!] (restricted)
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  6. Gehrig, Thomas, 1998. "Screening, cross-border banking, and the allocation of credit," Research in Economics, Elsevier, vol. 52(4), pages 387-407, December. [Downloadable!] (restricted)
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  7. Giovanni Dell'Ariccia & Ezra Friedman & Robert Marquez, 1999. "Adverse Selection as a Barrier to Entry in the Banking Industry," RAND Journal of Economics, The RAND Corporation, vol. 30(3), pages 515-534, Autumn. [Downloadable!] (restricted)
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  9. Greg Shaffer & Z. John Zhang, 2000. "Pay to Switch or Pay to Stay: Preference-Based Price Discrimination in Markets with Switching Costs," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(3), pages 397-424, 06. [Downloadable!] (restricted)
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  12. Thomas Gehrig & Rune Stenbacka, 2000. "Information Sharing in Banking: A Collusive Device?," Econometric Society World Congress 2000 Contributed Papers 1837, Econometric Society. [Downloadable!]
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  13. Jappelli, Tullio & Pagano, Marco, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CEPR Discussion Papers 2184, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 10(1), pages 205-36.
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  15. João A. C. Santos & Luísa A. Farinha, 2000. "Switching from single to multiple bank lending relationships: determinants and implications," BIS Working Papers 83, Bank for International Settlements. [Downloadable!]
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  16. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March. [Downloadable!] (restricted)
  17. Drew Fudenberg & Jean Tirole, 1999. "Customer Poaching and Brand Switching," Harvard Institute of Economic Research Working Papers 1871, Harvard - Institute of Economic Research.
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  18. Neven, Damien J, 1992. "Regulatory Reform in the European Community," American Economic Review, American Economic Association, vol. 82(2), pages 98-103, May. [Downloadable!] (restricted)
  19. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September. [Downloadable!] (restricted)
  20. Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 901-926.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Degryse, H. & Ongena, S., 2002. "Distance, lending relationships, and competition," Discussion Paper 16, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  2. Hans Degryse & Steven Ongena, 2002. "Bank-Firm Relationships and International Banking Markets," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 9(3), pages 401-417, November. [Downloadable!] (restricted)
  3. Pekka Mannonen, 2002. "The Strategic Response of Banks to an Exogenous Positive Information Shock in the Credit Markets," Discussion Papers 830, The Research Institute of the Finnish Economy. [Downloadable!]
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