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Exclusion, competition, and regulation in the retail loan market

Listed author(s):
  • Melnik, Arie
  • Shy, Oz
Registered author(s):

Exclusion of borrowers from credit markets became a primary concern for regulators during the recovery from the recent recession. The paper analyzes loan-making institutions that set both interest rates and minimum credit requirements. We propose analytical measures of the degree of borrower exclusion from receiving loans. We analyze five market structures: Single lender, regulated interest rate, entry, interest rate discrimination, and highly-competitive lenders. Interest rate regulation improves total welfare relative to a single lender market. However, entry of a second lender reduces exclusion and generates higher total welfare. In the absence of fixed costs, perfect and Bertrand competition are optimal.

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File URL: http://www.sciencedirect.com/science/article/pii/S0378426614002866
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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 52 (2015)
Issue (Month): C ()
Pages: 189-198

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Handle: RePEc:eee:jbfina:v:52:y:2015:i:c:p:189-198
DOI: 10.1016/j.jbankfin.2014.08.019
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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