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 - Faculty of Business and Economics (FEB)

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). Available at SSRN: https://ssrn.com/abstract=346341 or http://dx.doi.org/10.2139/ssrn.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 - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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