Softening Competition by Enhancing Entry: An Example from the Banking Industry

35 Pages Posted: 6 Nov 2002

See all articles by Jan Bouckaert

Jan Bouckaert

University of Antwerp - Department of Economics

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Date Written: October 2002

Abstract

We show that competing firms relax overall competition by lowering future barriers to entry. We illustrate our findings in a two-period model with adverse selection where banks strategically commit to disclose borrower information. By doing this, they invite rivals to enter their market. Disclosure of borrower information increases an entrant's second-period profits. This dampens competition for serving the first-period market.

Keywords: Barriers to Entry, Asymmetric Information, Switching Costs, Banking Competition

JEL Classification: D43, L13, G21

Suggested Citation

Bouckaert, Jan and Degryse, Hans, Softening Competition by Enhancing Entry: An Example from the Banking Industry (October 2002). CESifo Working Paper Series No. 782. Available at SSRN: https://ssrn.com/abstract=346341

Jan Bouckaert

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium
+32 3 220 4055 (Phone)

Hans Degryse (Contact Author)

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
135
Abstract Views
1,022
rank
221,336
PlumX Metrics