Information Acquisition amd Market Power in Credit Markets
AbstractInvestment in information acquisition can be used strategically by banks as a commitment device to augment market power. A static two-period economy with informationally heterogeneous banks is analyzed. Information acquisition limits asymmetries of information and competitors' rents ex post. If projects yield insufficient returns in the first period, competitors' ex ante break even constraints are tightened, and competition inhibited. Market power can thereby be substantially augmented, and monopoly rents obtained. Welfare is lower with information acquisition, while banks are better off. With more than two banks, information acquisition is characterized by strategic complementarities: hence, multiple equilibria may exist.
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Bibliographic InfoPaper provided by Royal Economic Society in its series Royal Economic Society Annual Conference 2003 with number 13.
Date of creation: 04 Jun 2003
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credit markets; information acquisition; market power;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Tassel, Eric Van, 2006. "Relationship lending under asymmetric information: A case of blocked entry," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 915-929, September.
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