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Banking, Commerce, and Antitrust

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  • Stefan ARPING

Abstract

We develop a model in order to explore how a bank's equity stake in a competitor of a borrower affects the financing relationship with the borrower and product market outcomes. The bank's affiliation with the competitor can give rise to anti- or pro-competitive effects. Large equity stakes can facilitate anti-competitive conduct. In sharp contrast, small equity stakes are pro-competitive. The reason is that the bank's equity stake in the competitor hardens the borrower's budget constraint. This alleviates credit rationing problems and enables the borrower to invest more aggressively. These findings suggest that bank equity holdings in industrial firms have non-monotonic effects on product market competition.

Suggested Citation

  • 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.
  • Handle: RePEc:lau:crdeep:00.22
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicolò Pecora & Alessandro Spelta, 2014. "Shareholding Network in the Euro Area Banking Market," DISCE - Working Papers del Dipartimento di Economia e Finanza def014, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Gonzalez-Maestre, Miguel & Granero, Luis M., 2003. "Industrial loans and market structure," European Economic Review, Elsevier, vol. 47(5), pages 841-855, October.
    3. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552 Elsevier.
    4. Stefan ARPING, 2002. "Cannibalization & Incentives in Venture Financing," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 02.07, Université de Lausanne, Faculté des HEC, DEEP, revised May 2002.
    5. repec:ctc:serie1:def14 is not listed on IDEAS
    6. 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.
    7. Arping, Stefan, 2005. "Protective interests and creative destruction," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 401-431, October.

    More about this item

    Keywords

    banking and commerce; equity participations; soft budget constraint; antitrust;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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