Financial Intermediation and Entry Deterrence
City University London
Thomas D. Jeitschko
Michigan State University - Department of Economics
Leonard J. Mirman
University of Virginia - Department of Economics
In this paper, we analyze the interaction between an incumbent firm's financial contract with a bank and its product market decisions in the face of the threat of entry, in a dynamic model. The main results of the paper are: there exists a separating equilibrium with no limit pricing; there are conditions under which the low-cost incumbent repays more to the bank, due to the threat of entry; and there are parameter values for which the bank makes more profits with the threat of entry than without.
Number of Pages in PDF File: 24
JEL Classification: D4, L1, G3
Date posted: January 14, 2000
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