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Imperfect Competition and Costly Screening in the Credit Market under Conditions of Asymmetric Information

  • Kubo, Koji

This article provides an analysis of how banks determine levels of information production when they are in imperfect competition and there is a condition of information asymmetry between borrowers and banks. Specifically, the study concentrates on information production activities of banks in duopoly where they simultaneously determine intensity of pre-loan screening as well as interest rates. The preliminary model of this paper illustrates that due to strategic complementarities between banks, banking competition can result in inferior equilibrium out of multiple equilibria and insufficient information production. Policymakers must take into account the possible adverse effects of competition-enhancing policies on information production activities.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/191/3/ARRIDE_Discussion_No.15_kubo.pdf
File Function: First version, 2004
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Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 15.

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Date of creation: Nov 2004
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Publication status: Published in IDE Discussion Paper. No. 15. 2004.11
Handle: RePEc:jet:dpaper:dpaper15
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