Competition and Strategic Information Acquisition in Credit Markets

36 Pages Posted: 4 Mar 2002

See all articles by Robert Marquez

Robert Marquez

University of California, Davis

Robert B. H. Hauswald

American University - Department of Finance and Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: March 2002

Abstract

Regulatory changes and technological advances have profoundly affected the competitive landscape of credit markets. In this paper, we investigate how intermediaries alter their information acquisition strategies in response to increased competition. We specify a model where the severity of asymmetric information between banks and borrowers increases with their informational distance. As the number of active banks grows, investments in information acquisition initially fall with returns to informed intermediation. However, when a critical investment threshold is reached, further entry leads to specialization. Intermediaries optimally refocus informational resources in their core markets by retrenching from peripheral segments to fend off competitive threats to their captive customer base. The incentive to concentrate informational resources increases in the degree of adverse selection in the market.

Keywords: Banking, competition, information acquisition, specialization

JEL Classification: G21, L11, L14, D44

Suggested Citation

Marquez, Robert S. and Hauswald, Robert B.H., Competition and Strategic Information Acquisition in Credit Markets (March 2002). Available at SSRN: https://ssrn.com/abstract=302196 or http://dx.doi.org/10.2139/ssrn.302196

Robert S. Marquez (Contact Author)

University of California, Davis ( email )

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Apt 153
Davis, CA 95616
United States

Robert B.H. Hauswald

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1996 (Phone)
202-885-1946 (Fax)

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