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Do Public Banks have a Competitive Advantage?

  • Astrid Matthey

    ()

    (Max-Planck-Institute of Economics)

Private banks often blame state guarantees to distort competition by giving public banks the advantage of lower funding costs. In this paper I show that if borrowers perceive the public bank as supporting economic development, private banks may be able to separate ï¬rms by self selection, enter the market, and obtain proï¬ts in equilibrium despite their cost disadvantage. The public bank's competitive advantage may be offset, independently of what its true objective function is. Even perfect competition between private banks does not lead to zero proï¬ts.

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Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2007-100.

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Date of creation: 07 Dec 2007
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Handle: RePEc:jrp:jrpwrp:2007-100
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  9. Maskin, Eric S., 1996. "Theories of the soft budget-constraint," Japan and the World Economy, Elsevier, vol. 8(2), pages 125-133, June.
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