The Commitment Effect of Choosing the Same Bank
In a model where firms use external funds to finance R&D investments, we show that they may prefer to borrow from the same bank, rather than going to competing banks. A monopolist bank will capture more of firms' operating profits. But, these profits will also be higher, since having the same bank serves as a commitment device not to spend too much on R&D. In our model, the latter effect dominates.
|Date of creation:||May 2001|
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