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Financial Intermediation and Entry Deterrence

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  • Neelam Jain

    (Rice University)

  • Thomas D. Jeitschko

    (Texas A&M University)

  • Leonard J. Mirman

    ()
    (University of Virginia)

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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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-037/2.

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Date of creation: 04 Apr 2001
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Handle: RePEc:dgr:uvatin:20010037

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Web page: http://www.tinbergen.nl

Related research

Keywords: Entry; Intermediation; Limit Pricing; Banking; information;

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References

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  1. Phillips, Gordon M., 1995. "Increased debt and industry product markets An empirical analysis," Journal of Financial Economics, Elsevier, Elsevier, vol. 37(2), pages 189-238, February.
  2. Kovenock, Dan & Phillips, Gordon, 1995. "Capital Structure and Product-Market Rivalry: How Do We Reconcile Theory and Evidence?," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 403-08, May.
  3. Luigi Zingales, . "Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry," CRSP working papers, Center for Research in Security Prices, Graduate School of Business, University of Chicago 336, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  4. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 981-96, July.
  5. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 93-106, March.
  6. Maksimovic, Vojislav, 1990. " Product Market Imperfections and Loan Commitments," Journal of Finance, American Finance Association, American Finance Association, vol. 45(5), pages 1641-53, December.
  7. Opler, Tim C & Titman, Sheridan, 1994. " Financial Distress and Corporate Performance," Journal of Finance, American Finance Association, American Finance Association, vol. 49(3), pages 1015-40, July.
  8. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
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Cited by:
  1. Jain, Neelam, 2011. "Entry deterrence and experimentation under demand uncertainty," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 29(4), pages 464-472, July.
  2. Mehari Mekonnen Akalu, 2002. "Measuring and Ranking Value Drivers," Tinbergen Institute Discussion Papers, Tinbergen Institute 02-043/2, Tinbergen Institute.
  3. Leonard J. Mirman & Thomas Jeitschko & Neelam Jain, 2001. "Financial Intermediation and Entry-Deterrence: A survey," Economics Bulletin, AccessEcon, vol. 12(1), pages 1-13.

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