Financial Intermediation and Entry Deterrence
Neelam Jain
City University London
Thomas D. Jeitschko
Michigan State University - Department of Economics
Leonard J. Mirman
University of Virginia - Department of Economics
Abstract:
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
working papers series
Suggested Citation
Jain, Neelam, Jeitschko, Thomas D. and Mirman, Leonard J., Financial Intermediation and Entry Deterrence. Available at SSRN: http://ssrn.com/abstract=199308 or http://dx.doi.org/10.2139/ssrn.199308
