Abstract

http://ssrn.com/abstract=563850
 
 

References (27)



 
 

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Conflicts of Interest, Information Provision and Competition in Banking


Patrick Bolton


Columbia Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Xavier Freixas


Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR)

Joel Shapiro


Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

June 2004

Universitat Pompeu Fabra Economics and Business Working Paper No. 760

Abstract:     
In the market for financial services, sellers may have better information than buyers regarding the match between a buyer's needs and the good's characteristics. This may lead to conflicts of interest and/or the underprovision of information by the seller. We compare two firm structures, specialized banking, where a unique financial product is provided, and one-stop banking, where several products are provided. We show that, although conflicts of interest may prevent information disclosure under monopoly, competition forces full information provision for sufficiently high reputation costs. Secondly, in the presence of market power, one-stop banks will provide reliable information and charge higher prices than specialized banks, providing a new justification for one-stop banks. Finally, if independent financial advisers are able to provide information, this increases product differentiation and hence market power, so it is in the interest of banks to promote external independent financial advice.

Number of Pages in PDF File: 45

Keywords: Conflicts of interest, information provision, one-stop

JEL Classification: D43, D82, G20, L15

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Date posted: July 12, 2004  

Suggested Citation

Bolton, Patrick and Freixas, Xavier and Shapiro, Joel, Conflicts of Interest, Information Provision and Competition in Banking (June 2004). Universitat Pompeu Fabra Economics and Business Working Paper No. 760. Available at SSRN: http://ssrn.com/abstract=563850 or http://dx.doi.org/10.2139/ssrn.563850

Contact Information

Patrick Bolton (Contact Author)
Columbia Business School - Department of Economics ( email )
420 West 118th Street
New York, NY 10027
United States
HOME PAGE: http://www0.gsb.columbia.edu/faculty/pbolton/

Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Xavier Freixas
Universitat Pompeu Fabra ( email )
Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2726 (Phone)
+34 93 542 1746 (Fax)
HOME PAGE: http://www.econ.upf.es/~freixas
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
HOME PAGE: http://www.econ.upf.es/~freixas/more/personal1.htm
Joel David Shapiro
Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )
Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 27 18 (Phone)
+34 93 542 17 46 (Fax)
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References:  27
Citations:  33

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