Finance and Competition
Financial constraints are often thought as representing a barrier to entry for new firms, thus potentially limiting competition in product markets. We investigate the relationship between finance and product market competition in the context of a general equilibrium, two-sector model. The analysis highlights the role played by firm heterogeneity as well as by the level and distribution of wealth. Financial development may lead to lower markups (and thus to more competitive markets) in financially dependent sectors, even when it reduces the number of firms and increases standard market concentration indexes. The analysis implies that incumbency is not a sufficient condition to oppose financial liberalization. It also implies that, for a given level of imperfect financial development, poorer countries will tend to have less competitive product markets.
|Date of creation:||Feb 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 0041 31 631 45 06
Fax: 41 31 631 37 83
Web page: http://www.vwi.unibe.ch/content/publikationen/index_eng.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ube:dpvwib:dp0703. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Silvia Glusstein-Gerber)
If references are entirely missing, you can add them using this form.