IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v22y1989i2p263-77.html
   My bibliography  Save this article

Collusion and the Banking Structure of a Duopoly

Author

Listed:
  • Michel Poitevin

Abstract

The author shows that, in credit relationships, the choice of a lender may become a determinant of the extent of competition in downstream industries. In the presence of imperfect output markets and asymmetric information in financial markets, members of an industry may achieve a partial collusion in the output market by borrowing from the same bank. In an oligopoly, debt is procompetitive as it gives incentives to the borrowing firm to undertake an aggressive output strategy. As both firms borrow, the industry becomes more competitive and riskier. The firms' debt value is decreased. A common lender can better control these incentive effects and hence limit the extent of competition in the output market.

Suggested Citation

  • Michel Poitevin, 1989. "Collusion and the Banking Structure of a Duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 22(2), pages 263-277, May.
  • Handle: RePEc:cje:issued:v:22:y:1989:i:2:p:263-77
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0008-4085%28198905%2922%3A2%3C263%3ACATBSO%3E2.0.CO%3B2-J
    Download Restriction: only available to JSTOR subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Haan, Marco A. & Toolsema, Linda A., 2008. "The strategic use of debt reconsidered," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 616-624, March.
    2. Giacinta Cestone, 1999. "Corporate Financing and Product Market Competition: An Overview," CSEF Working Papers 18, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    3. Giacinta Cestone & Lucy White, 2003. "Anticompetitive Financial Contracting: The Design of Financial Claims," Journal of Finance, American Finance Association, vol. 58(5), pages 2109-2142, October.
    4. Stefan ARPING, 2000. "Banking, Commerce, and Antitrust," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 00.22, Université de Lausanne, Faculté des HEC, DEEP, revised May 2002.
    5. Christos Constantatos & Stylianos Perrakis, 2010. "On the Impact of Financial Structure on Product Selection," Discussion Paper Series 2010_11, Department of Economics, University of Macedonia, revised Nov 2010.
    6. Jean Bonnet & Nicolas Le Pape & Teresa Nelson, 2011. "Firm start-up strategies and performance in France: Survival and growth," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201117, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    7. Jean-Etienne de Bettignies & Anne Duchêne, 2015. "Product Market Competition and the Financing of New Ventures," Management Science, INFORMS, vol. 61(8), pages 1849-1867, August.
    8. Erkki Koskela & Rune Stenbacka, 2000. "Bank mergers and the fragility of loan markets," Finnish Economic Papers, Finnish Economic Association, vol. 13(1), pages 3-18, Spring.
    9. Le Pape, Nicolas, 2001. "Endettement des firmes et comportements de rivalité : l’apport des principaux modèles en économie industrielle," L'Actualité Economique, Société Canadienne de Science Economique, vol. 77(2), pages 281-302, juin.
    10. Stylianos Perrakis & Christos Constantatos & Jean Lefoll, 2008. "Financial Structure and Product Qualities," Discussion Paper Series 2008_15, Department of Economics, University of Macedonia, revised Dec 2008.
    11. Salvatore Piccolo & Giancarlo Spagnolo, 2014. "Debt, Managers and Cartels," CSEF Working Papers 365, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    12. Marquez, Robert, 2010. "Informed lending as a deterrent to predation," Finance Research Letters, Elsevier, vol. 7(4), pages 193-201, December.
    13. Spagnolo, Giancarlo, 1998. "Debt as a (Credible) Collusive Device, or: "Everybody Happy but the Consumer"," SSE/EFI Working Paper Series in Economics and Finance 243, Stockholm School of Economics, revised 01 Aug 2004.
    14. Poitevin, Michel, 1989. "Information et marchés financiers : une revue de littérature," L'Actualité Economique, Société Canadienne de Science Economique, vol. 65(4), pages 555-589, décembre.
    15. Franck, Bernard & Le Pape, Nicolas, 2008. "The commitment value of the debt: A reappraisal," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 607-615, March.
    16. Jean LEFOLL & Stylianos PERRAKIS, 2002. "Financial Structure and Market Equilibrium in a Vertically Differentiated Industry," FAME Research Paper Series rp96, International Center for Financial Asset Management and Engineering.
    17. Neubecker, Leslie, 2002. "The strategic effect of debt in dynamic price competition with fluctuating demand," Tübinger Diskussionsbeiträge 250, University of Tübingen, School of Business and Economics.
    18. Arping, Stefan, 2005. "Protective interests and creative destruction," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 401-431, October.
    19. von Rheinbaben, Joachim & Ruckes, Martin, 2004. "The number and the closeness of bank relationships," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1597-1615, July.
    20. Marco Mazzoli, 2000. "Investments and financial structure with imperfect financial markets: an intertemporal discrete-time framework," Heterogeneity and monetary policy 0008, Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica.
    21. Neff, Cornelia, 1997. "Finanzstruktur und strategischer Wettbewerb auf Gütermärkten," Tübinger Diskussionsbeiträge 89, University of Tübingen, School of Business and Economics.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:22:y:1989:i:2:p:263-77. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler). General contact details of provider: http://edirc.repec.org/data/ceaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.