24 Pages Posted: 14 Jan 2000
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.
JEL Classification: D4, L1, G3
Suggested Citation: Suggested Citation
Jain, Neelam and Jeitschko, Thomas D. and Mirman, Leonard J., Financial Intermediation and Entry Deterrence. Available at SSRN: https://ssrn.com/abstract=199308 or http://dx.doi.org/10.2139/ssrn.199308