Softening Competition by Enhancing Entry: An Example from the Banking Industry
We show that competing firms relax overall competition by lowering future barriers to entry. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information. By doing this, they invite rivals to enter their market. Disclosure of borrower information increases an entrant's second-period profits. This dampens competition for serving the first-period market.
|Date of creation:||01 Sep 2002|
|Publication status:||Published in Journal of Industrial Economics, 2003, vol. 54, pages 27-52|
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